EFTA01458599.pdf

Mina pc•tepos Focal MI' DV WIWI itTnic!, ,c ,1t1.1ler iki? Ts AsaPaps pasp•ctios Panft He.”0•40.1)11,doas ® Europe (equities) ®1' U.S. investment grade INAP-V\../ • oicril!‘ ;pry,• .4C,M, Europe's equities are still supported by sound economic and We return to neutral on U.S. investment grade. Risk premiums financial data such as credit growth, business surveys and have widened to such an extent that they may offer a sufficient earnings dynamics. However, we continue to stay neutral on buffer against defaults. The Fed's postponement of its first European equities and favor Eurozone equities which are set rate hike also argues against an underweight. Additionally, the to benefit more not only from relative U.S: strength, but excess supply of the summer months is now leveling off. also from low oil prices. :AArThd @Japan (equities) EUR high yield C;d2,114 eart•V. tv,- p14 tatta”. We upgrade Japanese equities to overweight. The market has We upgrade EUR high yield to overweight. Over the medium now fallen by around 15% since August, probably making it term, this segment should be supported by low default rates, a good time to take advantage of its underlying merits: the good ratings, high demand, the low share of the energy and soundest regional earnings dynamics, rising dividends and mining sectors and historically high market risk premiums. Investment, plus major reforms in corporate governance which However. Brazil and automotive issuers could dampen have started to bear fruit. sentiment temporarily. 0 Emerging markets (equities) ()Covered bonds • • ..::,< re i v?.VIA After revising expected emerging-market 12-month earnings We downgrade covered bonds to underweight. These were growth down to zero, we downgrade EM equities to not left unscathed by rising volatility and, moreover, are likely underweight. Despite the sharp sell-off, there still could be to be impaired by fears that the ECB might reduce its covered- further setbacks, particularly in Latin America where consensus bond purchases. Short-term, the market is also suffering from estimates of 2016 earnings growth look unrealistic. substantial new issuance, which has exceeded demand. • • • • Q.1") Financials (equities) • C-!!) Hedge funds .. .7a4 Pagaa- OP2a14 PPYIS We remain overweight on financials. Balance sheets continue This market environment should allow hedge funds to to recover, dividend payments are rising and valuations remain outperform. Nervous, sideways-trading markets are particularly moderate in historical terms In the short run, monetary policy suited to equity-market-neutral strategies and discretionary- should also strongly affect financials. Their recent softness macro strategies, taking advantage of regional divergences. could be reversed if the Fed started its interest-rate turnaround before year-end. The tactical view (one to three months) Fixed income: For sovereign bonds, #denotes rising yields.+ Equity indices: unchanged yields and %falling yields. For corporates, • positive view securitized /speciahies and emerging-market bonds, the arrows * neutral view depict the option-adjusted spread over U.S. Treasuries, it not • negative view stated differently. 'depicts an expected widening of the spread, Fixed income and exchange rates: •loa sideways spread trend and tea spread reduction. *The fixed-income sector or the exchange rate is expected to perform well The arrows' colors illustrate the return opportunities for • We expect to see a sideways trend long-only investors. • We anticipate a decline in prices in the fixed-income sector or \‘.• positive return potential for long-only investors in the exchange rate -• limited return opportunity as well as downside risk The traffic lights' history is shown in the small graphs 1 A high downside risk for long-only investors ®A circled traffic light indicates that there is a commentary on the topic. Spread over German Bunds The strategic view up to September 2016 These traffic-light indicators are only meaningful for existing Equity indices, exchange rates and alternative investments: private-equity portfolios The arrows signal whether we expect to see an upward trend (F), a sideways trend (..) or a downward trend N for the particular equity index, exchange rate or alternative asset class. Further explanations can be found in the glossary. C PP••••••?Ecl•ip, I •>. >et 20! thr•••••••1 a CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0118580 CONFIDENTIAL SDNY_GM_00264764 EFTA01458599