Tracking industrial risks: De-risking on track with widening negative gap between industrial investment and production

Still strong manufacturing profit growth amid shifting sector trends. Overall profitability distribution stayed stable: 38.6% (vs. 37% last month) of sectors (by liability) saw profitability improvement, 39.6% stayed stable and 21.8% deteriorated. We reclassified: 1) tobacco manufacturing to profit mixed from deteriorating as profit growth remained at ~-1% to 2% in the past few months vs. ~8% decline in 1H26; 2) food manufacturing and printing to profit deteriorating due to notably slower profit growth vs. 2H25 and 1H26; 3) pharma to profit improving from profit mixed with profit growth back to ~4% after consecutive declines and in 2H24-2025 and volatility in 1H26. Overcapacity risk reduction continues with a further widening of the negative gap between FAI and IP. September FAI-IP fell to -10.3% based on average YTD PPI growth. 86.4% of sectors (by liabilities) saw capex slow down. We moved tobacco to capex stable from slowing with FAI-IP rising steadily to around 0% from -9% in early