地区策略：上调欧洲评级，下调美国评级.docx

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1、EquityResearchGlobalGlobalEquityStrategyRegionalstrategy:UpgradeEurope,downgradeUSInvestmentStrategy

2、StrategyWeaddedtoourweightingofcontinentalEuropeinlateMayandnowaddfurthertotakeourweightingtobenchmarkinlocalcurrencyterms(raisingtoasmalloverweightindollarterms).Therearefivemainreasonsforthis:Impor

3、tantstructuralchanges,including:i)Germanyeasingfiscalpolicybyc8%ofGDP(drivingdownGermany’shugecurrentaccountsurplus);ii)theECBbuying70%ofoutstandingnon-eligiblecorporatedebt;iii)theECBexpandingitsbalancesheettodatebyasmuchastheFed(andeffectivelyignoringthecapitalkey);iv)theEURecoveryFundestablishing

4、theprincipleofcommondebtissuance(withthepossibilityofagrant);andv)EUCommissionerVestageropeningthedoortocross-borderconsolidation.BondsnolongerprovidediversificationinEuropewhenthereisaneconomicshock.Hence,foroncetheequityriskpremiummightdrivevaluationsaswegetabond-to-equityswitch.CurrentlytheERPis7

5、.5%.ThewarrantedERPonourmodelcouldfallto7.1%.Lesslong-termdamage.ThefurloughschemeandloanguaranteeschemeshavemeantthatbothunemploymentandprojectedcorporatebankruptcieshaverisenfarlessintheEUthanintheUS.CSeconomistsbelievetheEU’srecoverywillbequickerthanthatoftheUS.Furthermore,theeuroareashouldexitth

6、iscrisiswithgovernmentdebttoGDP43pptsbelowthatoftheUS(andabudgetdeficit7.1pptsbelow),accordingtotheIMF.Thisbringslesscorporatetaxrisk.Lessshort-termdamage.TheEUcurrentlyappearstobemanagingthevirusmoreeffectivelythantheUS,andthisisnowdrivingrelativeperformance(especiallyofbanks).WethinkEuropeanPMIssh

7、ouldstrengthenvstheUSinthenearterm,supportingperformance.Normallywegetmoreinflowsaftercapitulation.Thestageofthecycleisalsosupportive.Whynotoverweight?1)TheeurothreatenstoappreciatetoEUR/USD1.20-1.25(henceouroverweightindollarbutnotlocalcurrencyterms);2)sector-adjustedP/Eisinlinewithitshistoricalnor

8、m;3)itistooearlytounderweighttech(Europeisveryunderweighttech);4)thesituationinItalylookseconomically,sociallyandpoliticallyunsustainableunlesstherearemuchbiggergrantsfromNorthernEurope;and5)relativee