Credit Suisse / Andrew Garthwaite ; Global Equity Strategy 01-12
Regional & country allocation: Japan and Continental Europe are our most preferred regions. We upgraded Continental Europe to 12% from 8%, reversing our mid-July downgrade. Similarly, we increased our overweight in Japan to 8% overweight (from 2%) as it is the most cyclical region. We are overweight France and the periphery, specifically favoring Italy and Ireland (though we are underweight Portugal). We have downgraded the UK to 3% underweight (from benchmark), as it is the most defensive major region at a time when global GDP should accelerate. We stay underweight the US at -5%, where P/B relatives are close to an all-time high and where we see some rate risk. We remain benchmark EM, and favour commodity importers as well as Korea, India, Taiwan and the CE3 (Poland, Hungary, and Czech Republic).
Sectors: In Europe, we are overweight financials and cyclicals, underweight defensives (with the exception of pharma) and resources and recently upgraded utilities to benchmark. We continue to prefer developed markets to emerging market exposure. In the US, we are overweight cyclicals , technology and financials. We are benchmark telecoms and IOCs, and underweight of food producers, utilities, tobacco and retailing (excluding hardline).