Deutsche Bank has set out its European investment strategy for 2016 in a note sent to clients on Monday.
The key chart in the “European Equity Strategy 2016 sector allocation” note by Sebastian Raedler and his team is this:
It shows pretty simply which sectors Deutsche Bank is bullish and bearish on, and to what extent.
Here’s the rationale for why it’s laying its chips down just so:
We like plays on the Euro-area recovery that have not yet re-rated (banks, construction materials, staffing agencies) and beneficiaries from a further strengthening of the dollar (tech, pharma, airlines). We are cautious on the sectors with direct and indirect commodity exposure (energy, mining, industrials), the emerging market plays (consumer staples, luxury goods, industrials) and the bond proxies (consumer staples again, regulated utilities, infrastructure).
A lot of that makes sense — the dollar is likely to strengthen thanks to the looming interest rate rise, emerging markets are in the toilet, and it looks like the China-backed commodities boom of the last decade is over for good.
Perhaps the most surprising call is backing the banks. Banks, particularly in Europe, have had another torrid year, laying off 100,000 staff as they struggle with more fines, more regulation, and client activity drying up.
Still, he who dares wins right?