EFTA01457957.pdf

Letter to investors Central banks - drivers and driven For a long Ume, central banks have been driving markets ever higher. But there are limits to their power and political priorities are also important. Both the power and powerlessness of central The U.S. Federal Reserve Board (Fed) has banks can he observed on three continents also had to devote more attention to capital at the moment. Let's start with crisis-ridden markets than to inflation for quite a while. Just Greece. After several 'final deadlines' had a few weeks before what has widely been passed, only one measure promoted a real viewed as the most probable date for a first sense of urgency: the decision by the European rate hike (September). the Fed either does not Central Bank (ECB) not want to - or is not able to to increase Emergency - commit itself. But what Liquidity Assistance (ELA). High debt levels is the Fed's scope for Had ELA been cancelled action atter all? Like many completely - for example and volatility are a major central banks, it is ii ECB debt had not been struggling with the ripple serviced - a few bank dangerous mix. effects of the crisis. How holidays wouldn't have should it manage a return been sufficient to save the Greek banking to 'normal" in an environment of sluggish system. But this also demonstrated the ECB's growth and debt levels that are even higher powerlessness because it ended up being than before the crisis? Whatever your opinion forced to act as a vicarious agent for political on easy money, one negative side effect is objectives, being no longer able to take its certain: highly leveraged economic entities decisions autonomously and based on rts own and capital markets are more susceptible to set of rules. market fluctuations - and by their own actions may even reinforce them. This might be the Compared to the few hundred billion euros at reason for the central banks' continuing desire stake in Greece, the People's Bank of China to quickly nip economic. downswings in the (PBoC) had to fight against a far bigger bud by providing extra liquidity. In the long monster the local stock market with a market run, however, an economy's health will suffer capitalization of $7 trillion (down from a peak of without the purging effects of economic cycles. over $10 trillion in June). The Chinese central bank does not, at least, have to pretend to be politically independent. But since the PBoC could not cope with the situation alone, it Asoka Wohrmann. Chief Investment delivered only one of the many weapons which `Officer of Deutsche Beijing tired at the erratic stock exchange. Asset & Wealth Whether the market downturn was a systemic Manageakyrit risk is doubtful - only 5% of financial assets (Deutsche AWM) held by the Chinese are equities, and even after and Member of the recent falls the domestic stock exchanges are Deutsche AWM Executive Committee still up by double-digit levels year-to-date. The situation on the Hang Seng China Enterprises Index (HSCEI), which is key for foreign investors, is different. This index is now at a similar level to the start of 2015 and could, in our view, offer opportunities in the second half of the year due both to valuations and a likely re-acceleration of the Chinese economy. Past performance is not indicative of future returns. No assurance can be given that any forecast, investment objectives and/or expected returns will be achieved. Allocations are subject to change without notice. It is not possible to invest directly in an index. F = forecast. Forecasts are based on assumptions, estimates, opinions and hypothetical models or analyses that may prove to be incorrect. CiOV63's lAr.get,:atE,Iftv: Aufml 2=z:,- 0 CONFIDENTIAL — PURSUANT TO FED. R. GRIM. P. 6(e) DB-SDNY-0117690 CONFIDENTIAL SDNY_GM_00263874 EFTA01457957