Deutsche Bank has downgraded Allied Domecq's and Pernod Ricard's shares. The German broker told clients that, for the first time since 1999, it was turning more cautious on the spirits sector after a significant re-rating of the industry.

Deutsche Bank reduced its estimates for the spirits industry by between 2% and 4% to account for recent US dollar weakness, and cut its stance on the sector to 'neutral'.

In contrast, the broker argued that the brewing sector "offers investors the scope to participate in buoyant economic conditions in many emerging markets this year."

It said it recommends an 'overweight' position in the sub-sector and remains positive on InBev and Scottish & Newcastle, as the likelihood of earnings upgrades in 2005 "should ensure their continued outperformance."