* The biggest debate concerns how long the reflation trade will continue :
- many clients believe we are early cycle and thus want to stick to being overweight cyclicals.
- CS disagree : labour market tightness in the US, UK, Japan and China is characteristic of a later-cycle phase
- In general, the reflation trades, manifesting in value vs growth and cyclicals vs defensives, continue to be seen as plays on higher yields
* Regions :
- consensus is overweight on Japan
- Clients have been adding to Continental Europe, but are still underweight, in our judgement.
- Worries over political risk remain dominant.
- Investors are much more cautious on GEM given dollar views and concerns over protectionism.
- GEM - sector-adjusted P/E is now at a 20% discount to developed markets, a 12-year low
- China appears to have fallen off investors' radar screens for now
* TRump :
- 'Trump trades' have been: defence stocks, higher bond yields (and overweight of financials), Russia and Japan.
* Sector /Themes :
- Consensus longs among our clients included Alphabet and defence stocks
- Consensus longs where we disagree: semis are thought to be in a super-cycle and, increasingly, investors are long
of mining
- Investors still appear to view financials as more of a trade/hedge (on rising bond yields) than necessarily an investment in fundamentals.
- European investors have clearly turned bearish on healthcare (and are skeptical of valuations because the sector is over-earning)
- Most clients see oil capped at $55-60pb by shale.