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Finding ways out of a barren landscape

Graphs on a computer screen

During 2022 capital markets have been under pressure from very high inflation, along with very large, rapid key interest rate hikes. In addition, we have an ongoing energy crisis and a Chinese economy that is in serious distress. Unsurprisingly, all of this has led to radical downgrades in growth forecasts. A recession is now the consensus.

The overall economic picture deteriorated over the summer, forcing central banks to raise key interest rates drastically. Together with a severe energy crisis in Europe, this is eroding household purchasing power, which is the main reason why we have adjusted our growth forecasts sharply downward. Because of some bright spots – easing of global value chains, strong household and corporate balance sheets and declines in some commodity prices – we expect the recession to be mild.

During 2023 as a whole, we expect economic growth to be slightly above zero in the United States and Europe. But over the course of the year, growth will slowly rebound. We also foresee a slowdown in inflation this autumn and winter, so central banks will not need to hike key rates further next year. Within a few months, we may thus see a situation where macroeconomic momentum turns from negative to positive, but from low levels. However, this picture remains uncertain due to the energy crisis, continued COVID-19 lockdowns in China and the impact on household sentiment of rising inflation and falling asset prices.

Valuations and stock market performance

The trend during 2022 has been the opposite of recent years in terms of sector and style performance. Previously acclaimed growth companies have served as punching bags, while “dirty” sectors such as oil and gas, arms and tobacco stand out as winners. Companies have defied economic headwinds and delivered surprisingly good earnings performance, pulling down valuations and moderating stock market declines.

In our main scenario, which can best be described as a controlled recession, quality companies with strong cash flows and balance sheets and with the ability to increase sales and earnings without too much help from the economic cycle should fare best. This type of company can be found in most sectors but is most well-represented in the technology and health care sectors.


Examples of dampening effects during the year in our portfolios include exposures to Swedish equities with low valuations, an overweight in global equities and its positive currency effect, holdings in alternative investments with low correlation to equities and corporate bonds that have not fallen in value, as well as a short duration in our fixed income portfolios, which has reduced the impact of the upturn in interest rates and yields. Examples of opposite effects are our exposure to growth companies in global equities and our allocation between asset classes, as well as our sustainability-based exclusions, which in 2022 hurt our relative returns when oil and gas prices rose sharply. This is a long-term stance that we believe is sound and that we expect will boost our returns.

Biotech companies, Transition, China

For more details, please read the full report, which also provides you with extra reading in the
form of three interesting theme articles:

  • Breakthrough for biotechnology
  • Transition – A state of constant change
  • China – Growth takes backseat to COVID policy
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