20161018-Deutsche Bank-The House View.pdfVIP

Deutsche Bank Research Deutsche Bank Research The House View: Common Sense Prevails October 18 2013 DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MICA(P) 054/04/2013. 1The House View – Common Sense Prevails 2 Special report – Japan: The Great Escape Deutsche Bank Research The House View – 18 October 2013, TheHouseView@, +44 207 545 8465 The House View – October 18 2013: Common Sense Prevails The much-awaited reopening of the US government and suspension of the debt ceiling marks an end, albeit temporarily, to the political spectacle in Washington. While we were never in doubt that the US would avoid default, the episode highlights that political brinkmanship and short-term fixes are phenomena not unique to Europe. However, the resolution of this episode has inflicted deep wounds on the Republican party and Congress. As a result, chances for meaningful progress in the upcoming budget negotiations have improved. Another government shutdown and debt ceiling showdown next year seem less likely We expect the economic impact of the shutdown and political impasse to be relatively muted. Somewhat perversely, the deadlock in Washington helped underpin risk appetite, as the elevated state of uncertainty raised expectations that Fed tapering will be delayed, thus containing the recent rise in borrowing costs Although we remain constructive on equities, the majority of this year’s rally has been driven by multiples normalising from depressed levels rather than higher earnings. As a result, Q3 reporting will provide crucial insights as to whether the earnings inflection required to propel the rally is materialising An exception to this trend is Japan, where multiples remain little changed despite earnings growth of 60% this year. In a special report, we outline our conviction in Abenomics and why we think Japanese equities could double over the coming years