From Deutsche Bank’s House View 2017, published on Dec 14 2016 (highlighted text from DB):
« US: Sir John Templeton once famously said’ “Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.” We have seen a microcosm of at least the first three facets of that thesis since thePresidential elections. The question we face now is: have we already hit the “euphoria” phase? Transports are up 15%since the election and Financials are up over 20%. From the perspectives of David Bianco and Binky Chadha, we still have some room to go higher. Chadha appeals to the fact that equities flows had been so poor for so long, that we will continue to enjoy an underlying bid to the market that will be further buttressed by the ongoing buyback support. Bianco feels that while much has already been priced in, the potential benefits of a simple and achievable cut to the nominal corporate tax rate from 35% to 25% would drive an additional $10 of EPS to his current $130 S&P forecast.
Europe : The US-led reflation theme is helpful, but undermined if protectionism impedes growth in EM. The domestic story plods along and is marginally improving. But, reflecting still insoluble structural problems, it is interspersed with occasional political turmoil, which the market may not be able to brush off indefinitely. The rally in cyclicals versus defensives looks overextended (near 10-year high on price relative) and hence Sebastian Raedler favours defensives benefitting from $strength (pharma) or which have over-discounted Eurozone weakness (telco). Key underweights are driven by EM concerns (mining, cap goods) and/or $ strength (oil).
Asia: Countervailing forces of industrial reflation and RMB depreciation in China are providing an uplift to Asian earnings, while increasing the macro risks for the region. The former is in sync with a steeper US yield curve providing an uplift to financials, notably in Japan, as well as commodity cyclicals that remain in value territory. Conversely, Asian FX and capital outflows towards the dollar create a pressure point in a region that is arguably overly dependent on impetus from credit. Externally the new US administration potentially threatens Asia’s complex industrial supply chain. Our outlook concludes that regional positives will be in the ascendancy, at least for first half of 2017, with continued positive revisions, reduced foreign positioning and support from valuations. »