Chart 50: Utilities relative PE close to the 2013 low Chart 51: Chemicals / Industrials — re-rated but PE-rel not excessive 1.20 -0.5 1.30 5 1.15 0.0 1s 1.25 4 1.10 _ 420 | ; 1.05 d : ; 1.5 1.15 1.00 2 1 2.0 1.10 0.95 25 , 4 1.05 Ml ae an — Chemicals / Industrials PE-rel a ——PE-relative UTILITIES 1.00 ll ceneeehareeettaatie 0 3.9 ——= German 10y (RHS) 0.80 ——German 10y (RHS, inverted) 40 0.95 rz 0110 8011 O182 01/3 01/14 0105 01/16 01/08 01/10 01/12 01/14 01/16 Source: BofA Merrill Lynch Global Research, Datastream, IBES Source: BofA Merrill Lynch Global Research, Datastream, IBES UK - Waiting for Brexit It’s useful to think about where the UK is today in terms of the four risk factors we identified in our February 2016 Brexit preview: 1) weaker GBP; 2} weaker UK growth; 3) Higher UK risk premia & gilt yields; 4) increased regulatory, political and market uncertainty. Although we saw a severe risk-off move immediately following the Brexit vote, the only truly significant post-Brexit delta has been a weaker GBP. GBP is down 16% vs USD and 11% on a trade weighted basis. In fact, a simple post-Brexit strategy of going equal weighted long UK-listed sectors with above market international sales exposure vs sectors with below market sales exposure would have delivered ~110% returns in USD. Chart 52: GBP and sales exposure have been the key determinants for post-Brexit UK equity returns 30% UK MATERIALS $ = = QD 20% = = 10% UK FD/STAPLES Sow UK BANKS $ RTL$ o i UK CAP GDS$ U K ENERGY rs UK INSURANCES UKUS NERGYS = -10% = ic) ie UK MEDIA $ UK PH/BIO L SCI $ 3 K TIES $ UK DIV FINS 2 oumREAL ESKRETAING s UK TICMBVS $ eens RS E $ * 2 2 30% = UKITRANSPT $ 2 . -40% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% % International Sales exposure Source: BofA Merrill Lynch Global Research, Bloomberg, Factset. Performance in USD from 23-June-2016 close to 25-Nov-2016 close. The currency move contrasts with the other risk factors. To date, UK growth which has he