We believe there is a further de-rating to go. While Financials and Techare our biggest Overweights, Staples and Healthcare are our biggestUnderweights. The rationale for our Underweight is two-fold. One, de-ratinghas further to go. Two, continued downgrades to 2017E consensus EPS.    Second biggest EPS downgrades are in Staples. Figure 1 highlightsthat regional Staples have derated from a PBV vs. ROE premium of 112%to 76% currently. But we believe there is a further de-rating to at least thesector’s long-run historical average of 61%. The key catalyst for this furtherde-rating is continued downgrades to 2017E consensus EPS. Figure 2highlights a further downgrade of 1.1% in July, making it the second worstsector for EPS revisions this month. See Figures 2–3.    But MSCI China Staples starting to look attractive. MSCI ChinaStaples, PBV vs. ROE premiums have de-rated from highs of 263% to 39%currently. Moreover, the sector is associated with upgrades to 2017Econsensus EPS—of 1% in July. See Figures 4–5. The least attractive areThai Staples with PBV vs. ROE premiums of 87% which are more thandouble the sector’s historical average. Moreover, it continues to beassociated with 2017E consensus EPS downgrades—a further 1.8% inJuly. See Figures 8 and 10.

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