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Normalisation after an abnormal year

Image of a forest.

Last spring the focus was on economic crisis and low valuations. Today it is on stimulus measures, vaccines and a bright future, but also much higher financial market valuations. Among the positive factors are forecasts of rapid global economic growth, corporate earnings increases, monetary and fiscal stimulus and relative valuations (for example that equity valuations are more attractive in relation to bond yields than in relation to their own historical levels). On the minus side are high absolute market valuation levels, the often already aggressive positioning of investors and high total debt.

Earnings forecasts and valuations have been driven up

In terms of corporate earnings generation, 2020 was a miserable year, but still not as weak as we and other observers feared when we were in the eye of the storm. Since then, forecasts have been continuously revised upward. Now that we have completed much of the fourth quarter 2020 report period, that trend is intact. The final figure for full-year 2020 earnings looks set to be a downturn of around 18 per cent compared to 2019.

The outlook for 2021 and 2022 looks brighter. Our main scenario, with global economic growth of 5 per cent and 4.3 per cent, respectively, includes forecasts that corporate earnings will increase by more than 40 per cent overall during the next two years. But in our forecasts, there are big differentials between a surprisingly weak outcome and an equally surprisingly strong outcome. The risk is mainly connected to delay mechanisms due to the hard-to-manage COVID-19 situation.

Potential for continued stock market upturns

Last year’s sharp stock market recovery is reason for caution, but if economic growth forecasts prove correct, while interest rates, bond yields and inflation are under control, there is continued upside potential for equities – even though valuations are high in a historical perspective.

In an economic recovery, cyclical companies should be able to regain lost ground, but looking further ahead the digitisation trend will continue to benefit growth companies. Sizeable worldwide investments in sustainability suggest that last year’s strong performance for companies with this type of strategy may continue.

Focus on the EU taxonomy and health tech innovations

As usual, Investment Outlook includes theme articles on current topics. The first of these describes the health tech sector, which employs cutting-edge technological and digital methods to create effective and inexpensive health care solutions. The second in-depth theme article explains the new EU taxonomy, one of several European Union initiatives to help drive transformation to a more sustainable society.

Return expectations, %, next 12 months




Advanced economies 8.0 18.0
Emerging markets (local currencies) 8.4 17.5
Sweden 8.6 18.1

Fixed income investments



Government bonds -0.5 1.4
Corporate bonds, investment grade 
(Europe/US 50/50, IG)
0.4 7.0
Corporate bonds, high yield
High Yield (Europa/ USA 50/50, HY)
1.6 10.3
Emerging market debt
(local currencies, EMD)
5.2 11.3

Alternative investments



Hedge funds 3.5 7.0


*24 month historical volatility

Source: SEB, forecasts January 2021, in SEK

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