CIO Insights - Time to Deliver · Global CIO Reinhart-Rogoff title. But they should be optimistic...

Deutsche Bank Wealth Management

CIO Insights

Q2 2017 EMEA

Time to Deliver So rhetoric turns into reality

CIO InsightsLetter to Investors2

LETTER TO INVESTORS

Time to Deliver

2017 has so far been characterized by repeated rallies in risky assets – despite a background of political and policy uncertainty. These rallies have been ascribed to the “Trump trade”, with markets thought to be excited about the possibility for fiscal reform and infrastructure spending in the U.S. Most recently, the first round of the French presidential election has also helped. But this can only be part of the story. Markets are aware that fiscal spending could take time to ramp up and that U.S. tax reform could be highly regressive.

Markets are also, I think, responding to a bigger belief that, nearly a decade into the financial crisis, the economic landscape is finally brightening. Some of the hard evidence for this is already there – in the form of Fed rate hikes and improving labor markets. Survey-based (soft) data on corporate and consumer intentions suggests that more upside is possible.

There is also a subtle change of psychology away from the “bad must be good” market responses that have often characterized the quantitative easing (QE) era. (The upside-down logic being that "bad" data is in fact “good” for markets as it increases the likelihood of further monetary policy intervention.) Markets are no longer completely in thrall to monetary policy: they are also looking for genuine opportunities.

This change is not without risks. Even after Fed rate hikes, developed market interest rates will remain low, leaving investors chasing yields. And, as we know, markets cannot themselves predict the future: they are opportunistic and will respond to trends both up and down. There is a sort of rational irrationality in play here, but it makes sense only over a short-term time horizon. Long-term sustainability is not central to the markets’ calculations. (A study of behavioral finance yields some useful insights here.)

It is also clear that government policy initiatives may not be honored. President Trump may find it difficult to pass infrastructure and tax reform proposals through Congress. Brexit-related discussions may prove unsettling. There remains a risk – although it is not our base case scenario – that European political developments could still derail European policy direction. And while we expect strong Chinese growth to continue, the country’s policymakers still have some very difficult tasks to handle.

Past performance is not indicative of future returns. Forecasts are not a reliable indicator of future performance. Readers should refer to disclosures and risk warnings at the end of this document. Produced in April 2017.

CIO InsightsLetter to Investors3

What is important is that the appearance of forward motion is maintained for the next few months – and that evidence of economic improvement becomes more and more visible in corporate performance. The way this should happen is through a further improvement in earnings. But this will be a gradual process while policy reversals and disappointments could be more immediate and sudden.

This suggests that markets could still be choppy in the months to come, and that we are likely to be reminded that we still operate in an unstable policy environment. Many of the problems that have characterized the last decade are unresolved. Despite the Fed’s moves to raise rates, we still live in a very abnormal monetary policy environment, fiscal deficits remain a problem and social stresses remain: the concept of “inclusive growth” remains an elusive goal for most economies and governments. Market gains will not fix these problems on their own.

How should an individual investor operate in such an environment? I think that if markets are often characterized by rational irrationality, then an individual investor should aim to be an optimistic pessimist. They should be pessimistic about the likely end-point of market booms – never believing that “this time it’s different”, to borrow the famous

Christian NoltingGlobal CIO

Reinhart-Rogoff title. But they should be optimistic about possible wins along the way – and not just in terms of temporary market gains, but also longer-term opportunities, for example from technological change.

To do this will require a highly active and enquiring approach – able, for example, to identify differences between short-term market reversals and larger-scale, longer-term events and act accordingly. As the examples of Brexit and the Trump presidency make clear, anti-consensus views will need to be evaluated on the basis of their likely impact, not on whether or not you agree with them. You should not assume that the low volatility world will continue forever: in fact, volatility has already picked up in fixed income and FX markets. And you may need to force yourself into some rational irrationality on the future too: nearly a decade into the financial crisis, there is a danger that we are too accustomed to assessing things in terms of danger, not potential opportunity. There will be plenty of investment opportunities out there – ensure you take them.

This suggests that markets could still be choppy in the months to come, and that we are likely to be reminded that we still operate in an unstable policy environment.


CIO InsightsContents4

Contents

Inside the coverThe clock is ticking down: we need to see evidence soon of policy progress, stronger economic data or improved corporate earnings to sustain further market rallies.

8 MACROECONOMICS

Animal spirits vs. the politics of policy

10 MULTI ASSET

Long-term positive; short-term careful

16ALTERNATIVES

Getting real on real estate

18 DATA TABLES

Macroeconomic forecasts

5 TEN THEMES

10 Themes for 2017: Update

12 EQUITIES

Markets are expensive for a reason

19 DATA TABLES

Asset class forecasts

21 GLOSSARY

23 DISCLAIMER

28 CONTACTS

14 FIXED INCOME AND FX

Finding a way


CIO InsightsTen Themes5

10 Themes for 2017: Update

TEN THEMES

Update: Policy divergence continues, with two to three additional Fed rate hikes in the next 12 months. U.S. fiscal policy measures (i.e. corporate tax reform and infrastructure spending) and the reduction of regulations should also support U.S. growth, benefitting the USD and U.S. equity market: EU and Japan have little scope for such intervention. U.S. dollar appreciation is expected to resume: we expect parity against the Euro by March 2018.

Update: Despite the U.S. pulling out of the Trans-Pacific Partnership (TPP), we still do not forecast a trade war. Expect tough talk and negotiations around NAFTA and China, but markets may prove more resilient than previously expected. Protectionism remains a threat, but improving fundamentals also mean that emerging markets look better placed than at the start of the year.

Update: Interest rates are broadly unchanged year-to-date but as global economic growth gains momentum and inflation continues to move higher, bond yields will likely rise. Inflation in the U.S. is already in the upper end of Fed projections and is an issue in the UK. Modest gains are likely in other regions, with oil prices a key factor. A steeper yield curve could benefit financials.

Theme: Diverging monetary, fiscal and regulatory policy will favor the U.S. Dollar and U.S. equity market.

Theme: We don’t expect a major outbreak of protectionism this year, but news around it could be unsettling. Be selective, particularly in the emerging markets.

Theme: Interest rates are likely to grind higher, with increasing attention paid to inflation. The extent of rate rises will be limited by quantitative easing (QE) and other factors.

10 Themes Views as of March 30, 2017. Past performance is not indicative of future returns. Forecasts are not a reliable indicator of future perfor-mance. Readers should refer to disclosures and risk warnings at the end of this document. Produced in April 2017.

At the end of last year, we launched our 10 Themes for 2017. Here we summarize each theme and provide an update on recent developments. The“thermometers” in each theme indicate our conviction in the theme at the start of the year and our current view.

Multi-dimensional divergence

Pop-up protectionism Get “real” on interest rates

02 0301

Start 2017

Current

Start 2017

Current

Start 2017

Current

Less conviction

CONVICTION

More conviction



Theme: Equity markets to move higher on the back of earnings growth, not price/earnings expansion. Regional markets will be driven by key sectors within them. Favor the U.S. and Japan.

Update: The magnitude of the rally in equity markets has been stronger and faster than we initially anticipated. As a result, equity markets are trading at the most expensive levels since 2004. However, a favorable earnings season and upward earnings revisions may have created upside risk to our targets. Consider using a potential pullback as a buying opportunity. Europe has now become more attractive as political risks appear to be declining.

Theme: The technology sector will continue to offer opportunities, for example in infratech, healthtech and fintech. The infotech sector overall also appears attractively valued.

Update: infotech has been the best performing sector year-to-date, but there are four good reasons still to like it over the longer term. First, infotech price/earnings ratios are still at a discount relative to the S&P 500. Second, expected infotech earnings (next twelve months) are rising. Third, infotech is the most cash rich sector of the S&P 500 and, fourth, it would benefit from a tax-repatriation holiday in the U.S.

All eyes on earnings NextGen tech

05 06

Update: Having been range-bound earlier in the year, crude oil prices have taken a leg lower due to rising U.S. production and crowded positioning. We think that crude oil prices will soon move modestly higher due to a gentle acceleration in global demand and positive seasonality. However, price gains will be limited by increasing U.S. production and elevated global inventories. Our 12-month forecast remains $58/b.

Theme: Even if the OPEC deal remains intact, increasing U.S. oil production should place a lid ($58/b) on oil prices.

Topped-off oil markets

07

Start 2017

Current

Start 2017

Current

Start 2017

Current

Update: Credit sectors remain fundamentally supported by accelerating economic growth and declining default rates. However, the recent rally in spreads to below our year end targets leave us cautious near term. For example, the current U.S. high yield spread is slightly below our year-end target (400 bps). We would consider using possible periods of credit weakness as a buying opportunity.

Theme: Despite the expected rise in interest rates, credit markets will continue to offer opportunities. Fixed income will still have an important role in portfolios, beyond diversification.

04

Start 2017

Current

Give credit to the bond market



Update: The fundamentals driving these themes remain unaltered. Demand for new infrastructure is not limited to the U.S. with emerging markets spending likely to increase. Cyber security remains a rapidly growing problem. The implications of global aging go well beyond healthcare needs and will have an impact on insurance and financial services. Millennials’ interest in consumer technology and life-style spending will be an important economic driver.

Update: Equity market volatility remains near multi-year lows but is likely to increase because of a number of factors. The divide between expectations and reality regarding Trump administration policy is wide. European elections could foster volatility and geopolitical risk (e.g. North Korea, and Russia) remains high. Foreign exchange and fixed income volatility has already increased.

Theme: Infrastructure, cyber security, global aging and millennials’ spending patterns are four long-term themes that will impact markets and create opportunities.

Theme: Implementation of policy promises could boost volatility. But investors need to distinguish between short-term market overreactions and longer-term structural shifts. Selectivity important.

10

09

Start 2017

Current

Update: While the U.S. dollar has softened in the opening months of this year, we remain bullish on the currency for the remainder of 2017. Further clarity on President Trump’s pro-growth policies (e.g. corporate tax reform) should help. Meanwhile, the fundamentals noted above and capital flows are likely to continue to support the currency.

Theme: Fundamentals (e.g. GDP growth and interest rate differentials) will support further U.S. dollar strength. Capital flows (e.g. through demand for U.S. debt) will help drive up the currency.

08

Start 2017

Current

Start 2017

Current

Tomorrow’s themes today

Navigating headline hysteria

Making the dollar great again!

CIO InsightsMacroeconomics8

Animal spirits vs. the politics of policy

MACROECONOMICS

Economic growth appears to be broadening out across multiple regions, as consumers and investors rediscover their “animal spirits”*. Purchasing managers’ indices (PMI), for example, reveal an increasingly upbeat assessment of many countries' economic prospects.

As often, where the U.S. leads, others follow. U.S. real gross domestic product (GDP) growth is forecast to accelerate by 0.6 percentage points to 2.2% in 2017 and then hit 2.4% in 2018. Investment is expected to make an important contribution to growth this year after proving a drag in 2016. Unemployment is likely to continue to decline towards the level associated with full employment. Lower unemployment should provide a moderate boost to wages and allow the upward trend in consumption to continue. In turn, higher wages and increased demand are likely to drive the core inflation rate to 1.9%, which would be just 0.1 percentage points below the 2% target inflation rate set by the U.S. Federal Reserve (Fed). Against this background, the Fed may announce another two to three modest rate hikes before March 2018.

The Eurozone is some way behind, but at least now appears to be on the right track. Sentiment indicators such as consumer confidence and PMI, as well as hard data such as industrial production and order intake, point to continued steady growth (1.5% in 2017 and 1.4% in 2018). Unemployment is slowly falling but remains at historically high levels in aggregate: this is likely to limit any increase in wages. Limited wages growth will keep the lid on consumption growth and thus overall economic expansion. Investment could also be deterred by impending elections and the shadow of Brexit.

*A term first used in economics by John Maynard Keynes in The General Theory of Employment, Interest and Money (1936). He described “animal spirits” as a “spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities”. Past performance is not indicative of future returns. Forecasts are not a reliable indicator of future performance. Readers should refer to disclosures and risk warnings at the end of this document. Produced in April 2017.

Figure 1:Our key current macroeconomic forecasts

GDP growth (% yoy)

Sources: Bloomberg Finance L. P., Deutsche Bank Wealth Management; as of March 24, 2017.

20172016

U.S.1.9

China6.7

U.K.1.8

Eurozone1.7

Japan1.0

U.S.2.4

China6.3

6.32.5

2.4

1.9

1.7

0.7

-1.6

-3.3-3.4

-3.5

-5.2

2.2

1.6

1.1

3.2

2.9

2.2

-2.9

-4.5

1.5

Japan1.6

Eurozone1.4

U.K.1.3

2018

Current account balance (% of GDP)

20172016

U.S.-2.8

China1.9

U.K.-4.7

Eurozone3.2

Japan3.8

U.S.-3.1

China2.4

Japan3.2Eurozone2.7

U.K.-3.5

2018

Consumer price inflation (% yoy)

20172016

U.S.1.7

China2.0

U.K.0.7

Eurozone0.2

Japan-0.1

U.S.2.0

China2.5

Japan1.0

Eurozone1.5

U.K.2.5

2018

Fiscal balance (% of GDP)

20172016

U.S.-3.1

China-3.2

U.K.-3.0

Eurozone1.9

Japan-5.7

U.S.-3.6

China-3.2

Japan-5.0

Eurozone-1.6

U.K.-3.6

2018

CIO InsightsMacroeconomics9

A modest increase in consumer price inflation (to 1.7% in 2017 and 1.5% in 2018) may encourage the European Central Bank (ECB) to reconsider its loose monetary policy. But there will also be practical reasons to think again about quantitative easing (QE). The ECB’s self-imposed limit of purchasing not more than one-third of an issuer’s bonds, for example, greatly limits the universe of bonds that it can buy. Higher yields might also be beneficial, at least for the banking sector. The question is whether the ECB will first taper QE before gently pushing up interest rates: this is the general assumption, but deposit rates could in theory be raised first. If they are not, the banking sector could receive further assistance, if needed, in the form of low-interest, targeted long-term refinancing operations (TLTROs).

Japan is also struggling to return to some sort of policy normality. GDP growth is likely to be 1.1% in 2017, higher than previously expected, and pick up further in 2018. One positive factor is that the drag from demographics is becoming less acute. Consumer price inflation will be moderately positive in both years, pushed up by a weaker Japanese yen and slightly higher commodity prices. The Bank of Japan is likely to keep a highly


accommodative policy stance for the next few months, but might switch to a more neutral position after the summer.

Amongst the emerging economies, Asia remains the main growth engine for the global economy – and in particular China. The Chinese government is taking a gradual approach to getting a handle on the problems it faces from bad investments, overcapacity and high debt in the state-owned corporate sector. Over the past two years, overcapacity in the coal, steel, cement, shipbuilding and electronic sectors have been reduced dramatically. Reducing the high debt of the corporate sector, however, will take time. The importance of private consumption has been growing since 2015, and this should limit any further slowdown in economic expansion – we forecast GDP growth of 6.3% in both 2017 and 2018.

Set against this global evidence of “animal spirits” must be a range of political and policy risks. This list here is a long one and the most obvious risks appear to be in the U.S. and Europe (although Chinese risks around debt should not be underestimated). As we noted earlier in this publication, one particular problem remains of policy delivery: President Trump is faltering here, and whilst the

non-fulfillment of some policy promises (those related to protectionism) may not be missed, lack of progress on tax reform or infrastructure could depress the markets. In Europe, the immediate focus has been forthcoming elections, seen as a gauge of economic nationalism. Here, the first round result of the French presidential election has provided some reassurance but the ongoing Brexit process could also be uncomfortable.

Even so, we remain on balance positive: we expect global growth to pick-up in 2017 and further gain regional breadth. As the saying goes, a rising tide will lift many if not all boats: economic growth in Brazil and Russia, damaged by lower commodity prices in recent years, should slowly trend higher in the years to come. The Eurozone periphery should also strengthen. But keep an eye on policy: governments have to play their part here, not just central banks.

0%

2%

4%

6%

8%

10%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016-1000000

-800000

-600000

-400000

-200000

0

200000

400000

600000

Source: U.S. Bureau of Labor Statistics. Data as of March 2017.

Figure 2:U.S. payroll gains help push down unemployment

Unemployment rate (%) Monthly non-farm payrolls gains (no.)

CIO InsightsMulti Asset10

Long-term positive; short-term careful

MULTI ASSET

A multi asset strategy today faces an immediate tactical issue: after a good performance by many asset classes so far this year, and given a macroeconomic environment that appears supportive for risky assets overall, will markets go even higher? Or is a temporary reversal possible?

The case for caution Looking over the next 12 months, our forecasts suggest only a muted total return outlook for many asset classes, lowering expected cross-asset returns on a 12 month basis. This puts the focus on controlling risk, with tactical decisions becoming even more important.

As a result, we have temporarily slightly reduced our allocation to equities. Our new end-March 2018 index forecasts allow (on average) only mid single-digit gains from current levels. Current stretched valuations, low volatility and a rather mature cycle suggest that some

kind of short-term correction is possible but the markets’ overall robustness and ongoing central bank support should limit downside risks. The U.S. market is thought to have reached its peak for now and will, at best, trade sideways over the short term. However, Europe could attract increased investors’ interest particularly since the first round of the French presidential election suggests that political risks may have reduced.

Credit generally well supported Within fixed income, sovereign yields should rise on a 12 month horizon but at a moderate pace. As a result, we believe that credit should generally remain well supported as the hunt for yield continues. So we stay underweight on sovereigns, which are already responding to higher inflation expectations, but have a more neutral approach to both investment grade and high yield debt (seeing some selective opportunities). We are keen on emerging

Stéphane JunodCIO EMEA and Head of Portfolio Management EMEA


A muted 12 month total return outlook puts the focus on controlling risk.

Source: Bloomberg Finance L P, Deutsche Bank Wealth Management. Data as of April 4, 2017.

Figure 3:Sovereigns respond to higher inflation expectations

5YR5YR Forward Breakeven Inflation Rate (Avg U.S., Germany, UK)

10YR Yield (Avg U.S., Germany, UK)

4.0%

3.5%

2.5%

1.5%

3.0%

2.0%

1.0%

0.5%

May 10 May 11 May 12 May 13 May 14 May 15 May 16

CIO InsightsMulti Asset11

market hard currency debt and would also maintain a reasonable cash position to portfolios to easily benefit from future market opportunities. We would be short duration, given our belief in an overall upside bias to fixed income yields.

Commodities not helped by stronger dollar We are neutral on commodities. Oil prices could pick up slightly, thanks in part to growth in demand offsetting continuing worries about excess supply – our 12 month forecast is $58/b (WTI). But the gold price could fall back from current levels – our 12-month forecast is $1,200/oz. Gold prices will be contained by rising U.S. real yields, although bouts of political uncertainty could cause temporary gains. We also continue to believe in our long-term stronger dollar theme, based on interest rate and growth differentials, but are tactically cautious and would pay attention to entry levels.

Equity

Developed Markets 33.0%

Emerging Markets 9.0%

Fixed Income

Credit 17.5%

Sovereigns 17.5%

Emerging Markets 8.0%

Cash 2.0%

Commodities 3.0%

Alternatives 10.0%

Figure 4:Asset allocation (balanced portfolio as of March 28, 2017)

Cash

Fixed Income

Commodities

Alternatives1

Fixed Income

Credit

Fixed Income Emerging Markets

Fixed Income Sovereigns

Equity

Equity Developed Markets

Equity Emerging Markets

The USD could temporarily weaken further temporarily on positive French political news, for instance.

If alternatives are included in a portfolio, we would generally be cautious. We have reduced our allocation to liquid alternatives, recognizing that the market dispersion picture is not conducive for several strategies, in particular equity market neutral funds. Merger Arbitrage and Discretionary Macro strategies could however do better in the current market environment.

But overall we stay positive, viewing future downturns as possible opportunities to buy on dips. Europe, in particular, might prove well positioned if and when political risks fade further.


Footnote: Asset allocation as of March 28, 2017. 1 Alternative investments are not suitable for and may not be available to all investors. Restrictions apply. Sources: EMEA Regional Investment Committee, Deutsche Bank Wealth Management. Suggested allocation for USD-based investors. This allocation may not be suitable for all investors. Past performance is not indicative of future returns. No assurance can be given that any fore-cast, investment objectives and/or expected returns will be achieved. Allocations are subject to change without notice. Forecasts are based on assumptions, estimates, opinions and hypothetical models that may prove to be incorrect. Investments come with risk. The value of an investment may fall as well as rise and your capital may be at risk. You might not get back the amount originally invested at any point in time. Readers should refer to disclaimers and risk warnings at the end of this document.

CIO InsightsEquities12

Markets are expensive for a reason

EQUITIES

Equities are expensive by nearly all measures. Still, given the robust global economy, we would consider using dips in the market as buying opportunities.

The main reason for our optimism is that the global upswing still has room to go. Much of the latest economic data has surprised positively and many corporate executives are more optimistic than last year. So far this year, earnings estimates have been moving higher overall, contrary to the usual seasonality. We

have raised our earnings estimates and 12-month price targets slightly for almost every region.

We forecast that the global economy will grow by 3.5% this year; this would be the sixth consecutive year of expansion between 3.1-3.5%. This is not as good as might first appear, of course. Global growth rates are still quite close to the 3% recession threshold defined by the International Monetary Fund (IMF). The positive way to look at it, however, is that

central banks are standing by ready to help – and, at these growth rates, there’s no real threat of a strong and sharp upturn in interest rates. We are also not seeing any of the broad signs typically associated with a sustained market correction or, above all, a recession in the foreseeable future. Note that in the U.S., only one of five bear markets in the past 50 years has occurred outside of a recession.


Figure 5:Expected earnings growth over the next 12 months

Source: Deutsche Asset Management. Data as of March 24, 2017. Dates in chart indicate date when 12-month forecast made.

Japan (MSCI Japan)Dec 2016: 9.1%Mar 2017: 13.0%

Asia ex. Japan (MSCI Asia ex. Japan)

Dec 2016: 8.5%Mar 2017: 11.5%

Eurozone (Eurostoxx 50)Dec 2016: 8.0%

Mar 2017: 10.9%

UK (FTSE 100)Dec 2016: 16.0%Mar 2017: 14.9%

Latam (MSCI Latam)Dec 2016: 18.5%Mar 2017: 19.3%

United States (S&P 500)Dec 2016: 6.9%

Mar 2017: 11.6%

CIO InsightsEquities13


United States We expect the S&P 500 Index to return to double-digit earnings growth in 2017 for the first time since 2011. Business and consumer sentiment is positive, and there is no break-out in long-term interest rates. Valuations and the potential for disappointment created by the new administration are the reasons we maintain our neutral rating.

EuropeMany economic indicators in Europe are improving. One reason is that companies are benefitting from stabilization in some important export markets. The mood is dampened, however, by concerns over Brexit and residual worries around elections in various Eurozone members. We are positive on Germany.

JapanWe believe that fundamentals here remain strong, as do companies’ balance sheets. The yen has, however, been gaining ground against the dollar since mid-December, which has weighed on Japanese equities. Furthermore we fear that Japanese companies will offer only a cautious assessment of future prospects and that funds will flow from Japan to emerging markets. We are neutral here.

Emerging MarketsThese trailed global stock markets from 2010 to 2016. We were initially skeptical about their outperformance in 2016 because it appeared largely linked to the oil price. But we have seen political and macroeconomic progress in several of the key emerging market economies, and central banks continue to have ample room for maneuver. We are positive here, but country selection is still important.

EM

Of course, there is potential downside risk inherent in markets, particularly given current valuations and economic policy uncertainty. But political and macroeconomic unpredictability is nothing new. What to look for is an accumulation of events that have the potential to cause paradigm shifts in economic and investor sentiment. Equity investors have been relatively serene in recent months (although there have been higher levels of volatility on fixed income and FX markets). However, this could be due to the fact that policy changes have been subtle so far and, as yet, have had only a gradual effect on the economy. However, the U.S. administration could disappoint rather soon if it fails to agree on cutting corporate taxes this year. Even if they do, tax cuts may not have a significant effect on earnings in 2017.

In summary, there are still plenty of reasons to buy stocks, despite strong recent rises in equity markets.

Figure 6:Expectations of ECB rate rise move sharply

March

February

January

December

November

August2016

2017

12

3

4

5

6

7

8

910

11

1213

14

15

16

17

1819

202122

23

24

25

26

27

2829

3031

September

October

0%

Probability of ECB Deposit Rate Hike at December 2017 Meeting

60%

Source: Bloomberg Finance L.P., Deutsche Bank Wealth Management. As of March 31, 2017.

CIO InsightsFixed Income and FX14

Finding a wayFIXED INCOME AND FX

Sovereign sovereigns Central bank policy remains key to fixed income markets, but in different ways for different regions. In general, the trend is towards “normalization” but at

rather different speeds. The U.S. Federal Reserve (Fed) is following a gradual path of interest rate hikes, while the European Central Bank ECB) is now approaching the probable end of its quantitative-easing (QE)

program after two years. But uncertainty is still a factor: the Bank of England, for example, appears determinedly pragmatic in light of Brexit, and temporarily willing to tolerate higher inflation.


Central banks must take different paths back to policy normality. Yields and exchange rates will reflect this.

CIO InsightsFixed Income and FX15

So regional trends are far from universal: it is interesting to note that at the end of the first quarter of 2017 the ten-year government-bond yields in the United States were roughly where they were when the year began, while yields had risen in Germany and fallen in the UK. But we stick with our view that global rates should rise at a moderate pace over the next 12 months – our forecast is for U.S. 10 year yields at 3.0% at end-March 2018, with German Bund yields at 0.8%, UK yields at 1.75% and Japanese yields at 0.0%. As well as Fed policy, better economic growth and gradually rising inflation pressures should be the drivers of the rise in yields.

Difficult decisions for the ECB The nature and extent of market uncertainty also varies between regions. In the U.S., there is an unusual consensus around the Fed’s next steps, even while there is considerable disagreement about the ability of government policy to stimulate economic growth. In Europe, on the other hand, the focus (at least for now) is less on policy actions than on macroeconomic forecasts – since the economic environment is seen as determining what the ECB can do. We expect European tapering discussions to flare up again no later than this summer and these could add to market volatility. One problem is that the ECB has a rather different mandate to the Fed. While the Fed’s aim is ‘merely’ ensure employment and price stability, things are a little more complicated for the ECB. In addition to its explicit mandate of price stability, implicitly the ECB also needs to keep interest-rate spreads in the periphery low, stimulate lending and keep the euro in check. Achieving all this in a heterogeneous monetary union will, in our view, require a slower, different kind of exit from QE. One option is

Yields are an important factor behind U.S. dollar valuation. U.S. yields fell back in the wake of the Trump administrations problems around health-care reform in mid-March. As a result, the U.S. dollar weakened, primarily against the Japanese yen. We would regard this weakness as a consolidation, however. Once investors’ positioning looks clearer, we expect the U.S. dollar to strengthen again. Economic growth and interest rate differentials should support this, as will fund flows from investors searching for yield.

The valuation of the Euro strength, by contrast, is largely based on the strength of European macro data as well as the ebb and flow of concerns around the French presidential election. Yields also helped in late March and early April: the periphery’s yield spreads against Bunds

FX: yielding to yields

to decouple bond purchases and key interest rate policies. ECB president Draghi could continue QE until he is no longer worried about peripheral Eurozone economies. But if, on the other hand, inflation sees a more sustainable increase, he could then start to adjust interest rates. The market is well aware of this dilemma, which makes it even more difficult to extract any clear meaning from the ECB’s words and actions, leaving bond markets prone to periods of volatility.

Credit over sovereigns We would focus on credit over sovereigns. We believe that better global growth environment, muted probabilities of a recession and solid corporate fundamentals (e.g. healthy balance


narrowed as did the Bund spread against U.S. Treasuries, supporting the euro. Nonetheless, we would consider any near-term politically-driven appreciation as a selling opportunity. Our 12-month forecast remains that the euro will fall to parity against the U.S. dollar. Meanwhile, sterling is likely to remain volatile as markets try to establish details surrounding the UK’s departure from the EU.

As regards the Japanese yen, it still remains the most reliable currency if market volatility is rising. However, the Bank of Japan is unlikely to change its monetary approach any time soon. Therefore, any rise in U.S. yields is likely to lead to yen weakness. So it could be sensible to sell the yen into any further rally.

sheets) should keep credit supported and we now expect lower spreads over the next 12 months. In the U.S., the potential for business-friendly policies in the U.S. (e.g. tax repatriation and cuts) should benefit U.S. corporations, specifically investment grade. Meanwhile, a better default environment and search for yield should support U.S. high yield. European credit should also benefit from lower default rates, as well as continued QE and better economic growth. We have lowered our 12-month forecast on emerging market spreads due to a better growth outlook, stabilization in commodity prices and some improvement in debt indicators. Credit market forecasts are given on page 18.

CIO Insights Alternatives16

Getting real on real estate

ALTERNATIVES

Investor interest in both unlisted real estate and infrastructure remains high. We see opportunities, notably in Europe, but also a strong need for a selective approach.

All real estate is local, as the old saying goes. But its appeal has been boosted by loose monetary policy in developed

markets in recent years. Falling return expectations for traditional asset classes have boosted investor interest in alternatives, notably real estate and infrastructure.

Monetary policy has now turned tighter in the U.S. The beginning of the end of

Alternative investments are not suitable for and may not be available to all investors. Restrictions apply.Past performance is not indicative of future returns. Forecasts are not a reliable indicator of future performance. Readers should refer to disclosures and risk warnings at the end of this document. Produced in April 2017.

quantitative easing may be getting closer in Europe and, possibly Japan. One upshot of this is that correlations across real-estate markets continue to decline: if, in future, monetary policy cannot be guaranteed to lift the whole sector, then a more selective approach is necessary. In future we are likely to see further

93%80%

UK82%57%

Ireland

97%79%

Norway

94%74%

Netherlands

92%74%

Sweden

97%83%

Denmark

70%36%

Poland

83%49%

Czech Republic

76%40%

Austria

68%35%

Greece

68%28%

Italy

76%40%

Hungary

70%35%

Portugal

89%75%

Germany

87%46%

France

80%47%

Spain

86%53%

Belgium

93%77%

Finland

Figure 7:Logistics: differentiate between online leaders and online laggards

Source: Eurostat, Deutsche Bank Asset Management. Data as of December 2016.

People who have used the internet in the past twelve months

Proportion of people who have used the internet to make a purchase in the past twelve months.

divergence both between and within regions.

Put succinctly, the U.S. real-estate cycle is maturing. Continental Europe looks relatively well positioned, as initial yields remain above the global average, but could moderate too. Meanwhile conditions remain mixed in the Asia Pacific region, with one concern being lower-than-average foreign trade growth. From a sector perspective, logistics continues to benefit from the secular shift towards online retailing.

The maturing of the U.S. real estate market is evident in several ways. While fundamentals remain strong, and risks from new supplies moderate, areas of weakness are emerging, notably in the office sector. With the U.S. close to full employment, the scope for further job creation (requiring new office space) is limited. Prospects also appear somewhat subdued for U.S. residential and again it pays to look at local conditions. Among the factors to watch are the shifting life-style preferences of households, particularly millennials entering their 30s. As they start looking for a home to raise a family, this could benefit urban nodes outside central business districts, offering amenities similar to city centers and easy commutes.

Real estate in core Europe markets still compares well to other asset classes, but further falls in initial yields during the second half of 2016 are adding to the likelihood of lower absolute returns over the next five years. In the short term, we still see the potential for further real-estate yield compression, driven in part by the current large spread over bonds, as well as the expectation of further rent growth. In the longer term, rising real rates would no doubt be an issue. We would suggest considering an approach

that made selective investments on emerging micro locations and niche segments with solid growth prospects, while keeping an eye on political risks. An alternative worth considering could be unlisted European infrastructure, where a reasonable premium over government yields looks achievable and active asset management can create further value.

In Asia, moderate inflation should help underpin rental growth, particularly in the inflation-sensitive logistics sector. A stable employment situation should also help. But office growth could be below long-term average, due to relatively slow export growth in highly trade-dependent economies such as South Korea, Hong Kong and Singapore.

But, to stress again the need for selectivity, consider the example of logistics. Broad trends may here hide as much as they reveal. For instance, the scope for internet-driven growth in logistics space naturally depends on how large online sales already are in the market in question (the chart on the previous page illustrates for Europe). Meanwhile, the impact on traditional retail real estate such as shopping centers varies, with prime locations more than holding their own. Indeed, well-configured retail space in the right locations can actually benefit from more time and money being spent on services that cannot be delivered online, such as dining, health care, fitness and the like.

CIO Insights Alternatives17

Real estate in core European markets still compares well to other asset classes but further falls in initial yields during the second half of 2016 are adding to the likelihood of lower absolute returns over the next five years.

Alternative investments are not suitable for and may not be available to all investors. Restrictions apply.Past performance is not indicative of future returns. Forecasts are not a reliable indicator of future performance. Readers should refer to disclosures and risk warnings at the end of this document. Produced in April 2017.

Macroeconomic forecasts

CIO InsightsData Tables18

DB WM 2017 Forecast

DB WM 2018 Forecast

GDP growth (%)

U.S.* 2.2 2.5

Eurozone (of which) 1.5 1.4

Germany 1.5 1.3

France 1.0 1.4

Italy 0.9 1.0

U.K. 1.6 1.3

Japan 1.1 1.6

China 6.3 6.3

India 7.2 7.6

Russia 1.5 1.8

Brazil 0.3 1.8

World 3.5 3.7

Consumer price inflation (%)

U.S.* 1.9 2.0

Eurozone 1.7 1.5

U.K. 2.5 2.5

Japan 0.7 1.0

China 2.4 2.5

Current account balance (% of GDP)

U.S. –2.9 –3.1

Eurozone 2.9 2.7

U.K. –4.5 –3.5

Japan 3.2 3.2

China 2.2 2.4

Fiscal balance (% of GDP)

U.S. –3.3 –3.6

Eurozone –1.6 –1.6

U.K. –3.5 –3.6

Japan –5.2 –5.0

China –3.4 –3.2

Please see risk warnings for more information. Forecasts are based on assumptions, estimates, opinions and hypothetical models or analysis which may prove to be incorrect. No assurance can be given that any forecast or target will be achieved. Past performance is not indicative of future returns. * For the U.S., GDP measure is calendar year but inflation measure is core PCE Dec to Dec %. Forecast for U.S. Headline PCE (Dec/Dec) is 2.0% in 2017 and 2.0% in 2018. U.S. GDP Q4/Q4 growth is 2.2% in 2017 and 2.4% in 2018.Source: Deutsche Bank Wealth Management. As of March 24, 2017.

DEUTSCHE BANK WEALTH MANAGEMENT

CIO Insights Data Tables19

Asset class forecasts

F = Forecasts. Please see risk warnings for more information. Forecasts are based on assumptions, estimates, opinions and hypothetical models or analysis which may prove to be incorrect. No assurance can be given that any forecast or target will be achieved. Past performance is not indicative of future returns. Source: Deutsche Bank Wealth Management. As of March 24, 2017.

DEUTSCHE BANK WEALTH MANAGEMENT CIO OFFICE

Benchmark interest rates Official rate End-Mar 2018F

United States Fed fund rates 1.50–1.75%

Eurozone Refi rate 0%

United Kingdom Repo rate 0.25%

Japan Overnight call rate 0%

FX End-Mar 2018F

EUR vs USD EUR/USD 1.00

USD vs JPY USD/JPY 120

EUR vs JPY EUR/JPY 120

EUR vs GBP EUR/GBP 0.81

GBP vs USD GBP/USD 1.23

USD vs CNY USD/CNY 7.1

Equities Market Index End-Mar 2018F

U.S. S&P 500 2,400

Germany DAX 12,600

Eurozone Eurostoxx 50 3,500

Europe Stoxx 600 380

Japan MSCI Japan 950

Switzerland SMI 8,300

U.K. FTSE 100 7,300

Emerging Markets MSCI EM 1,000

Asia ex Japan MSCI Asia ex Japan 600

Latam MSCI Latam 2,650

Commodities End-Mar 2018F

Gold Gold spot 1,200

Oil WTI spot 58

CIO Insights Data Tables20

F = Forecasts. Please see risk warnings for more information. Forecasts are based on assumptions, estimates, opinions and hypothetical models or analysis which may prove to be incorrect. No assurance can be given that any forecast or target will be achieved. Past performance is not indicative of future returns. Source: Deutsche Bank Wealth Management. As of March 24, 2017.

Fixed Income Market Index End-Mar 2018F

U.S.

UST 2yr US 2y yield 2.00%



U.S. IG Corp BarCap US Credit 100bp

U.S. HY Barclays US HY 400bp

Europe

Schatz 2yr GER 2y yield –0.50%

Bund 10yr GER 10y yield 0.80%

Bund 30yr GER 30y yield 1.70%

Gilt 10yr UK 10y yield 1.75%

EUR IG Corp iBoxx Eur Corp all 100bp

EUR HYML EUR Non-Fin HY Constr. Index

375bp

Asia Pacific

JGB 2yr JPN 2y yield –0.20%

JGB 10yr JPN 10y yield 0.00%

Asia Credit JACI Index 235bp

Global

EM Sovereign EMBIG Div 300bp

EM Credit CEMBI 290bp

CIO Insights Glossary21

Animal spirits are the emotions that drive economic behavior (and in particular consumption) in addition to any fully-reasoned decision making process.

The Bank of Japan (BoJ) is the central bank of Japan.

Brexit is a combination of the words “Britain” and “Exit” and describes the possible exit of the United Kingdom of the European Union.

Bunds are longer-term bonds issued by the German government.

Congress is the bicameral federal legislature of the United States.

CTA (Commodity Trading Advisors) strategies involve trading futures contracts traded on exchanges.

Core inflation refers to a measure of inflation which excludes some volatile components (e.g. energy). These excluded components can vary country by country.

Correlation is a statistical measure of how two securities (or other variables) move in relation to each other.

The current account balance is the balance of trade, net primary income or factor income and net cash transfers.

Discretionary macro strategies attempt to gain from macroeconomic, policy or political changes.

Diversification refers to the dispersal of investments across asset types, geographies and so on with the aim of reducing risk or boosting risk-adjusted returns.

Dividends are payments made by a company to its shareholders.

Earnings per share are calculated as a companies’ net income minus dividends of preferred stock all divided by the total number of shares outstanding.

An emerging market (EM) is a country that has some characteristics of a developed market in terms of market efficiency, liquidity and other factors, but does not meet standards to be a developed market.

The European Central Bank (ECB) is the central bank for the Eurozone.

The Eurostoxx 50 Index tracks the performance of blue-chip stocks in the Eurozone; the Eurostoxx 600 has a wider scope, taking in 600 companies across 18 European Union countries.

The Federal Reserve is the central bank of the United States. Its Federal Open Market Committee (FOMC) meets to determine interest rate policy.

Fintech is a general term for the innovative application of information technology in the financial sector.

The FTSE 100 Index tracks the performance of the 100 major companies trading on the London Stock Exchange.

Gross domestic product (GDP) is the monetary value of all the finished goods and services produced within a country’s borders in a specific time period.

Hedge funds are alternative, less regulated investment vehicles using pooled funds that may use a number of different strategies in order to earn active return for their investors.

High yield (HY) bonds are high-paying bonds with a lower credit rating than investment-grade corporate bonds, Treasury bonds and municipal bonds.

Inclusive growth focuses on creating opportunities for all parts of country’s population and fair distribution of the gains from growth.

Infratech refers to the application of technology in infrastructure.

The International Monetary Fund (IMF) was founded in 1994, includes 189 countries and works to promote international monetary cooperation, exchange rate stability and economic development more broadly.

JPY is the currency code for the Japanese yen, the Japanese currency.

Merger arbitrage strategies focus on gaining from uncertainties and market inefficiencies either before or after a corporate merger.

Long/short equity strategies are investing strategies of taking long positions in stocks that are expected to appreciate and short positions in stocks that are expected to decline.

Glossary

CIO Insights Glossary22

Mergers and acquisitions (M&A) are two key methods of corporate consolidation: A merger is a combination of two companies to form a new company, while an acquisition is the purchase of one company by another in which no new company is formed.

Millennials is a term used to refer to people born in the 1980s and 1990s, although this definition can vary.

MLPs (Master Limited Partnerships) are limited partnerships that are publicly traded on an exchange.

The MSCI Asia ex Japan Index captures large- and mid-cap representation across 2 of 3 developed-market countries (excluding Japan) and 8 emerging-market countries in Asia.

The MSCI EM Index captures large and mid cap representation across 23 emerging markets countries.

The MSCI Japan Index is designed to measure the performance of the large- and mid-cap segments of the Japanese market.

The North American Free Trade Agreement (NAFTA) came into force in 1994 and covers the U.S., Mexico and Canada.

A nominal rate or value does not make adjustments to reflect factors such as seasonality or inflation.

The Organization of the Petroleum Exporting Countries (OPEC) is an international organization with the mandate to “coordinate and unify the petroleum policies” of its 12 members.

Price/earnings (P/E) ratios measure a company’s current share price relative to its per-share earnings. In this context, LTM refers to last twelve months’ earnings.

Protectionism refers to policies due to limit trade between economies, through tariffs, quotas or other means.

Purchasing manager indices (PMI) provide an indicator of the economic health of the manufacturing sector and are based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment. The composite PMI includes both manufacturing and services sectors. They can be published by public sector or private agencies (e.g. Caixin, Nikkei).

Quantitative easing (QE) is an unconventional monetary policy tool, in which a central bank conducts a broad-based asset purchases.

The S&P 500 Index includes 500 leading U.S. companies capturing approximately 80% coverage of available U.S. market capitalization.

A strategic asset allocation process involves setting preferred allocations for asset classes on a medium to long-term time horizon.

The Swiss Market Index (SMI) includes 20 large and mid-cap stocks.

The Trans Pacific Partnership (TPP) is a planned trade agreement between 12 Pacific Rim countries, now apparently abandoned by the U.S.

Treasuries are bonds issued by the U.S. government.

Valuation attempts to quantify the attractiveness of an asset, for example through looking at a firm’s stock price in relation to its earnings.

Volatility is the degree of variation of a trading-price series over time.

West Texas Intermediate (WTI) is a grade of crude oil used as a benchmark in oil pricing.

The yield curve shows the different rates for bonds of differing maturities but the same credit quality.

CIO Insights Disclaimer23

Disclaimer

Past performance is not indicative of future returns. No assurance can be given that any forecast, investment objectives and/or expected returns will be achieved. Allocations are subject to change without notice. Forecasts are based on assumptions, estimates, opinions and hypothetical models that may prove to be incorrect. Investments are subject to investment risk, including market fluctuations, regulatory change, possible delays in repayment and loss of income and principal invested. Investments come with risk. The value of investments can fall as well as rise and you might not get back the amount originally invested at any point in time.

Investments in Foreign Countries – Such investments may be in countries that prove to be politically or economically unstable. Furthermore, in the case of investments in foreign securities or other assets, any fluctuations in currency exchange rates will affect the value of the investments and any restrictions imposed to prevent capital flight may make it difficult or impossible to exchange or repatriate foreign currency.

Macroeconomics Risk – Such investments may be in countries that prove to be politically or economically unstable. Furthermore, in the case of investments in foreign securities or other assets, any fluctuations in currency exchange rates will affect the value of the investments and any restrictions imposed to prevent capital flight may make it difficult or impossible to exchange or repatriate foreign currency.

Equity Market Risk – Risks in equity markets are linked to the change of spot and forward prices of equities on the relevant stock exchanges. These changes can be specifically influenced by, among others, the relevant companies’ financial health, dividend yields, repurchase rates and other macroeconomic factors.

Fixed Income Risk – The values of the fixed income instruments will fluctuate and may lose value, as bond values decline as interest rates rise. Certain bonds and fixed income instruments may be callable. If called, the investor will experience a shorter maturity than anticipated. Bonds referenced herein are exposed to credit risk, or the risk that the bond will be downgraded, and inflation risk, or the risk that the rate of the bond’s yield will not provide a positive return over the rate of inflation. Bonds are subject to interest rate risk. When interest rates rise, bond prices fall; generally the longer a bond’s maturity, the more sensitive it is to this risk. Bonds may also be subject to call risk, which is the risk that the issuer will redeem the debt at its option, fully or partially, before the scheduled maturity date. The market value of debt instruments may fluctuate, and proceeds from sales prior to maturity may be more or less than the amount originally invested or the maturity value due to changes in market conditions or changes in the credit quality of the issuer. Bonds are subject to the credit risk of the issuer. This is the risk that the issuer might be unable to make interest and/or principal payments on a timely basis. Bonds are also subject to reinvestment risk, which is the risk that principal and/or interest payments from a given investment may be reinvested at a lower interest rate.

Alternative investments – (such Hedge Funds, Private Equity, Non Traded REITs) may be speculative and involve significant risks including illiquidity, heightened potential for loss and lack of transparency. Alternatives are not suitable for all clients.

Deutsche Bank AG, Deutsche Bank Wealth Management, as of December 14, 2016


Important information

Deutsche Bank Wealth Management offers wealth management solutions for wealthy individuals, their families and select institutions worldwide. Deutsche Bank Wealth Management, through Deutsche Bank AG, its affiliated companies and its officers and employees (collectively “Deutsche Bank”) are communicating this document in good faith and on the following basis.

This document has been prepared without consideration of the investment needs, objectives or financial circumstances of any investor. Before making an investment decision, investors need to consider, with or without the assistance of an investment adviser, whether the investments and strategies described or provided by Deutsche Bank, are appropriate in light of their particular investment needs, objectives and financial circumstances. Furthermore, this document is for information/discussion purposes only and does not constitute an offer, recommendation or solicitation to conclude a transaction and should not be treated as giving investment advice.

Deutsche Bank does not give tax or legal advice. Investors should seek advice from their own tax experts and lawyers, in considering investments and strategies suggested by Deutsche Bank. Investments with Deutsche Bank are not guaranteed, unless specified. Unless notified to the contrary in a particular case, investment instruments are not insured by the Federal Deposit Insurance Corporation (“FDIC”) or any other governmental entity, and are not guaranteed by or obligations of Deutsche Bank AG or its affiliates.

Although information in this document has been obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness or fairness, and it should not be relied upon as such. All opinions and estimates herein, including forecast returns, reflect our judgment on the date of this report and are subject to change without notice and involve a number of assumptions which may not prove valid.

Investments are subject to various risks, including market fluctuations, regulatory change, counterparty risk, possible delays in repayment and loss of income and principal invested. The value of investments can fall as well as rise and you may not recover the amount originally invested at any point in time. Furthermore, substantial fluctuations of the value of the investment are possible even over short periods of time.

This publication contains forward-looking statements. Forward-looking statements include, but are not limited to assumptions, estimates, projections, opinions, models and hypothetical performance analysis. The forward-looking statements expressed constitute the author’s judgment as of the date of this material. Forward-looking statements involve significant elements of subjective judgments and analyses and changes thereto and/or consideration of different or additional factors could have a material impact on the results indicated. Therefore, actual results may vary, perhaps materially, from the results contained herein. No representation or warranty is made by Deutsche Bank as to the reasonableness or completeness of such forward-looking statements or to any other financial information contained herein. The terms of any investment will be exclusively subject to the detailed provisions, including risk considerations, contained in the Offering Documents. When making an investment decision, you should rely on the final documentation relating to the transaction and not the summary contained herein.

This document may not be reproduced or circulated without our written authority. The manner of circulation and distribution of this document may be restricted by law or regulation in certain countries, including the United States. This document is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, including the United States, where such distribution, publication, availability or use would be contrary to law or regulation or which would subject Deutsche Bank to any registration or licensing requirement within such jurisdiction not currently met within such jurisdiction. Persons into whose possession this document may come are required to inform themselves of, and to observe, such restrictions.

Past performance is no guarantee of future results; nothing contained herein shall constitute any representation or warranty as to future performance. Further information is available upon investor’s request.

This document may not be distributed in Canada, Japan, the United States of America, or to any U.S. person.

© 2016 Deutsche Bank AG


Important information

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Important disclosures

In the U.K. this publication is considered a financial promotion and is approved by Deutsche Asset Management (UK) Limited on behalf of all entities trading as Deutsche Bank Wealth Management in the U.K.

Deutsche Bank Wealth Management (DBWM) offers wealth management solutions for wealthy individuals, their families and select institutions worldwide and is part of the Deutsche Bank Group. DBWM is communicating this document in good faith and on the following basis.

This document is a financial promotion and is for general information purposes only and consequently may not be complete or accurate for your specific purposes. It is not intended to be an offer or solicitation, advice or recommendation, or the basis for any contract to purchase or sell any security, or other instrument, or for Deutsche Bank to enter into or arrange any type of transaction as a consequence of any information contained herein. It has been prepared without consideration of the investment needs, objectives or financial circumstances of any investor. This document does not identify all the risks (direct and indirect) or other considerations which might be material to you when entering into a transaction. Before making an investment decision, investors need to consider, with or without the assistance of an investment adviser, whether the investments and strategies described or provided by Deutsche Bank, are suitability and appropriate, in light of their particular investment needs, objectives and financial circumstances. We assume no responsibility to advise the recipients of this document with regard to changes in our views.

Past performance is no guarantee of future results.

The products mentioned in this document may be subject to investment risk including market fluctuations, regulatory change, counterparty risk, possible delays in repayment and loss of income and principal invested. Additionally, investments denominated in an alternative currency will be subject to currency risk, changes in exchange rates which may have an adverse effect on the value, price or income of the investment. The value of an investment can fall as well as rise and you might not get back the amount originally invested at any point in time. We have gathered the information contained in this document from sources we believe to be reliable; but we do not guarantee the accuracy, completeness or fairness of such information and it should not be relied on as such. Deutsche Bank has no obligation to update, modify or amend this document or to otherwise notify the recipient in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate.

Deutsche Bank does not give taxation or legal advice. Prospective investors should seek advice from their own taxation agents and lawyers regarding the tax consequences on the purchase, ownership, disposal, redemption or transfer of the investments and strategies suggested by Deutsche Bank. The relevant tax laws or regulations of the tax authorities may change at any time. Deutsche Bank is not responsible for and has no obligation with respect to any tax implications on the investment suggested.

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This document contains forward-looking statements. Forward-looking statements include, but are not limited to assumptions, estimates, projections, opinions, models and hypothetical performance analysis. The forward-looking statements expressed constitute the author‘s judgement as of the date of this material. Forward-looking statements involve significant elements of subjective judgments and analyses and changes thereto and/or consideration of different or additional factors could have a material impact on the results indicated. Therefore, actual results may vary, perhaps materially, from the results contained herein. No representation or warranty is made by Deutsche Bank as to the reasonableness or completeness of such forward-looking statements or to any other financial information contained in this document.

Deutsche Bank conducts its business according to the principle that it must manage conflicts of interest fairly, both between itself and its clients and between one client and another.

As a global financial services provider, Deutsche Bank faces actual and potential Conflicts of Interest periodically. The Bank’s policy is to take all reasonable steps to maintain and operate effective organisational and administrative arrangements to identify and manage relevant conflicts. Senior management within the Bank are responsible for ensuring that the Bank’s systems, controls and procedures are adequate to identify and manage Conflicts of Interest.

This information is communicated by Deutsche Bank Wealth Management.Deutsche Bank Wealth Management is a trading name of Deutsche Asset Management (U.K.) Limited. Registered in England & Wales No 5233891.Registered Office: Winchester House, 1 Great Winchester Street, London EC2N 2DB. Deutsche Asset Management (U.K.) Limited is authorised and regulated by the Financial Conduct Authority. Financial Services Registration Number 429806.This document may not be distributed in Canada, Japan, the United States of America, or to any U.S. person.

© 2016 Deutsche Bank AG


Risk warnings

Investments are subject to investment risk, including market fluctuations, regulatory change, possible delays in repayment and loss of income and principal invested. The value of investments can fall as well as rise and you might not get back the amount originally invested at any point in time.

Investments in Foreign Countries – Such investments may be in countries that prove to be politically or economically unstable. Furthermore, in the case of investments in foreign securities or other assets, any fluctuations in currency exchange rates will affect the value of the investments and any restrictions imposed to prevent capital flight may make it difficult or impossible to exchange or repatriate foreign currency.

Foreign Exchange/Currency – Such transactions involve multiple risks, including currency risk and settlement risk. Economic or financial instability, lack of timely or reliable financial information or unfavorable political or legal developments may substantially and permanently alter the conditions, terms, marketability or price of a foreign currency. Profits and losses in transactions in foreign exchange will also be affected by fluctuations in currency where there is a need to convert the product’s denomination(s) to another currency. Time zone differences may cause several hours to elapse between a payment being made in one currency and an offsetting payment in another currency. Relevant movements in currencies during the settlement period may seriously erode potential profits or significantly increase any losses.

High Yield Fixed Income Securities – Investing in high yield bonds, which tend to be more volatile than investment grade fixed income securities, is speculative. These bonds are affected by interest rate changes and the creditworthiness of the issuers, and investing in high yield bonds poses additional credit risk, as well as greater risk of default.

Hedge Funds – An investment in hedge funds is speculative and involves a high degree of risk, and is suitable only for “Qualified Purchasers” as defined by the U.S. Investment Company Act of 1940 and “Accredited Investors” as defined in Regulation D of the 1933 Securities Act. No assurance can be given that a hedge fund’s investment objective will be achieved, or that investors will receive a return of all or part of their investment.

Commodities – The risk of loss in trading commodities can be substantial. The price of commodities (e.g., raw industrial materials such as gold, copper and aluminium) may be subject to substantial fluctuations over short periods of time and may be affected by unpredicted international monetary and political policies. Additionally, valuations of commodities may be susceptible to such adverse global economic, political or regulatory developments. Prospective investors must independently assess the appropriateness of an investment in commodities in light of their own financial condition and objectives. Not all affiliates or subsidiaries of Deutsche Bank Group offer commodities or commodities-related products and services.

Investment in private equity funds is speculative and involves significant risks including illiquidity, heightened potential for loss and lack of transparency. The environment for private equity investments is increasingly volatile and competitive, and an investor should only invest in the fund if the investor can withstand a total loss. In light of the fact that there are restrictions on withdrawals, transfers and redemptions, and the funds are not registered under the securities laws of any jurisdictions, an investment in the funds will be illiquid. Investors should be prepared to bear the financial risks of their investments for an indefinite period of time.

Investment in real estate may be or become nonperforming after acquisition for a wide variety of reasons. Nonperforming real estate investment may require substantial workout negotiations and/or restructuring.

Environmental liabilities may pose a risk such that the owner or operator of real estate may become liable for the costs of removal or remediation of certain hazardous substances released on, about, under, or in its property. Additionally, to the extent real estate investments are made in foreign countries, such countries may prove to be politically or economically unstable. Finally, exposure to fluctuations in currency exchange rates may affect the value of a real estate investment.

Structured solutions are not suitable for all investors due to potential illiquidity, optionality, time to redemption, and the payoff profile of the strategy. We or our affiliates or persons associated with us or such affiliates may: maintain a long or short position in securities referred to herein, or in related futures or options, purchase or sell, make a market in, or engage in any other transaction involving such securities, and earn brokerage or other compensation. Calculations of returns on the instruments may be linked to a referenced index or interest rate. In such cases, the investments may not be suitable for persons unfamiliar with such index or interest rates, or unwilling or unable to bear the risks associated with the transaction. Products denominated in a currency, other than the investor’s home currency, will be subject to changes in exchange rates, which may have an adverse effect on the value, price or income return of the products. These products may not be readily realizable investments and are not traded on any regulated market.

Global Chief Investment OfficerChristian Nolting1

Global Chief Investment Officer (CIO)

Regional Chief Investment OfficerLarry V. Adam4

CIO Americas

Tuan Huynh6

CIO Asia

Stéphane Junod9

CIO EMEA

Johannes Müller1

CIO Germany

Strategy GroupLarry V. Adam4

Global Chief Strategist

Megan Horneman4

Senior Strategist Americas

Dr. Helmut Kaiser1

Chief Strategist Germany

Daniel Kunz8

Strategist EMEA

International locations1. Deutsche Bank AG

Mainzer Landstrasse 11-17 60329 Frankfurt am Main Germany

2. Deutsche Bank AG, London Zig Zag Building 70 Victoria Street, London SW1E 6SQ UK

3. Deutsche Bank Trust Company 345 Park Avenue 10154-0004 New York, NY United States

4. Deutsche Bank Securities 1 South Street 21202-3298 Baltimore, MD United States

5. Deutsche Bank Trust Company, National Association 5022 Gate Parkway, Suite 400 Jacksonville United States

6. Deutsche Bank AG, Singapore One Raffles Quay, South Tower 048583 Singapore Singapore

7. Deutsche Bank AG, Hong Kong 1 Austin Road West Hong Kong Hong Kong

8. Deutsche Bank (Switzerland) Ltd. Hardstrasse 201 8005 Zurich Switzerland

9. Deutsche Bank (Switzerland) Ltd. Place des Bergues 3 1211 Geneva 1 Switzerland

Contact us on [email protected]

Chief Investment OfficeMarkus Müller1

Global Head CIO Office

Sebastian Janker1

Head CIO Office Germany

Jürg Schmid8

Head CIO Office EMEA

Jeff Ng6

Head CIO Office Asia

Graham Richardson2

Financial Writer, CIO Office

Khoi Dang5

CIO Office Americas

Enrico Börger9

CIO Office EMEA

Contacts CIO Wealth Management

CIO Insights Contacts28

Stéphane Junod9CIO EMEA

Larry V. Adam4CIO Americas & Global Chief Strategist

Christian Nolting1Global Chief Investment Officer (CIO)

Johannes Müller1CIO Germany

Tuan Huynh6CIO Asia

Markus Müller1Global Head CIO Office

Date post:	07-Aug-2020
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