sentix ASR Essentials 39-2014

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Emerging Market sentiment plays catch-up with Commodities

The latest sentix survey indicates that the notable divergence in opinion on the Emerging Markets (EMs) and Commodities has begun to close. In recent months, a rising tide of optimism towards EMs as an asset class has provided an unusual counterpoint to deep pessimism on Commodities. An odd development given sentiment towards both asset classes has historically had a reasonably close relationship. However, this month’s questions’ on asset class preferences indicate that investors have begun to temper their optimism on EMs. While there remains a notable sentiment gap, Emerging Market sentiment has begun to play catch-up with Commodities.

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sentix ASR Essentials 38-2014

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Signs that sentiment gap between EMs and Commodities is narrowing

A notable feature of the sentix survey through the summer has been the resilience of sentiment towards Emerging Markets (EMs), at a time when pessimism has been the dominant theme in the case of Commodities. On this front, medium-term sentiment readings for Gold and Crude remain at deep pessimism levels, while nearterm pessimism on Crude is running at historic extremes. However, there are signs that sentiment on the equity front may be changing, with survey readings based on the strategic medium-term outlook for China 'bluechips' beginning to retreat from recent highs (Chart 2, page 2). It may be that the unusually large sentiment gap between EMs and Commodities is beginning to close.

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sentix ASR Essentials 37-2014

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Bunds sentiment supported by macro views

The latest sentix survey underlines the rising tide of optimism towards eurozone bonds, both in the near-term and on a medium-term strategic viewpoint. Such optimism may reflect expectations that the ECB could move into the market to purchase government bonds. However, it is also consistent with investors' views (as expressed when answering monthly questions on investment themes) that the inflation and economic backdrop continues to become more bond-bullish on a six month view (see Charts 2/3, page 2). That said, while the tide of optimism is rising, the survey also suggests that medium-term 'neutrality' levels on bunds are also becoming elevated. A degree of uncertainty on bunds remains beneath the sentiment surface.

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sentix ASR Essentials 36-2014

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High uncertainty on Equities even as sentiment revives

While sentix survey respondents remain highly pessimistic on the Euro, there are signs that optimism is returning in terms of the medium-term outlook for Eurozone bonds and equities (see Charts 6 & 9, pages 3 & 4). In the case of equities, the revival in medium-term sentiment readings on the likes of the DAX and EuroSTOXX indices has occurred despite heightened pessimism over the near-term outlook. It may be that investors have begun to see value in equities after their summer setbacks. However, the improved tone of sentiment has also been set against a reduced level of over-investment in equities, based on the monthly survey questions on investor positioning. Equity sentiment on the medium-term is improving, but uncertainties have not gone away, as indicated by positioning and elevated 'neutrality' levels (see Chart 7, page 3).

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sentix ASR Essentials 35-2014

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High-optimism on Healthcare constrasts with caution Cyclicals

The latest sentix survey suggests that investors' views on sectors remain caught in the grip of uncertainty about the macro outlook. Questions on participants' opinions about the medium-term outlook for European sectors relative to the market revealed that they remain deeply pessimistic on sectors such as Basic Resources, Autos and Industrials. On the other side of the sentiment divide, investors remain especially optimistic on the medium-term outlook for Healthcare (see Charts 2 & 3, page 2). Sector sentiment appears to remain set on a more Defensive sector tack relative to Cyclicals.

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