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Economics & Strategy

  • 16 January 2015Deflation Anxiety and Profitability Re-distributionWe shall be attending our German Conference in Frankfurt over the next few days. This has been a big week for all financial markets. There are doubtless more weeks of this kind still to come. We set out briefly our thoughts and initial conclusions in this flash note. We are moving from Over-Weight to Neutral in Switzerland. We will not move to Under-Weight in Switzerland until we are ready to downgrade the sectors of higher quality growth. The counterpart is to raise our exposure to the neighbouring core markets of the EZ - Germany and France - moving from Under-Weight to Neutral. The combined influence of lower energy costs and the forex influence should begin to have a positive effect upon corporate profits in EZ markets from this time. We are increasing our exposure to the consumer universe in both the Staples and Discretionary space. We are moving the “problem child” segment of Food & Staples Retailing to Over-Weight. As a consequence, our rating of the broader Retail sector of the DJ Stoxx universe moves from Neutral to Over-Weight. We are also moving from Neutral to Over- Weight in the Automobile sector.