Buy European financials, buy highly-leveraged high yield, buy domesticexposure and sell exposure to low risk, Deutsche Bank strategists say in abullish note.
"Now's the time," they write, saying that they are returning to beingtactically 'overweight' on the STOXX 600 .
"By our estimates a fair-value forward price-to-earnings ratio for the STOXX600 should be 12.5 times. The market is currently trading at 11 times forward,and we believe this excess risk premium is a function of sovereign risk," theywrite.
"The leading indicator for this recovery could be Italy. Credit growth hasfallen faster in Italy, but lending standards appear to be stabilizing. TheItalian economy has destocked aggressively, and the synchronized slowdown in thepace of deleveraging and the pace of destocking could put the Italian economyback on the road to growth. And where the Italian economy goes, we believe theeuro area economy will follow."
The strategists upgrade banks and insurance to 'overweight', and downgradefood and beverages and healthcare to 'underweight'.
They also upgrade telecoms to 'overweight', saying that "a narrowing insovereign CDS (credit default swaps) should also help precipitate a preferencefor companies with high debt, plus a turn in growth should help to reduce thenumber of dividend cuts."
Reuters Messaging: blaise.robinson.thomsonreuters.com@reuters.net
Keywords: MARKETS EUROPE STOCKSNEWS