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Summary of the report May 2019

We are in an interesting situation, with shares and corporate bonds priced much higher than a few months ago while economic turmoil has receded. After the last issue of Investment Outlook, we chose to reduce the risk level in our portfolios to a neutral stance, with some overweighting in global equities compared to Swedish equities. In fixed income, we remain overweight in corporate bonds. But greater uncertainty suggests a period of continued large price fluctuations.

How different asset classes have performed

The chart shows the 5-year performance of various asset classes.
The chart shows returns on the broad MSCI AC World equity index, the OMX equity index, the OMRX bond index and the Pan-European High Yield Index in local currencies. Source: Bloomberg/Macrobond.

Expected returns, next 12 months

Equities Return Risk
Global equities 7.3% 12.6%
Emerging market equities 7.9% 14.2%
Swedish equities 8.5% 13.0%
Fixed income investments Return Risk
Government bonds -1.3% 1.2%
Corporate bonds, investment grade (Europe) 0.9% 2.7%
Corporate bonds, high yield (Europe) 3.7% 3.9%
Emerging Market Debt  (lokal valuta) 7.0% 8.1%
Alternative investments Return Risk
Hedge funds 3.5% 6.0%

Source: SEB

Global equities

Challenging valuations, due to rising prices
  • Nervousness, risk aversion and falling share prices late in 2018 have been replaced by greater optimism and rising stock markets.
  • The MSCI All Country World Index in local currencies, including dividends, reached all-time highs in early May.
  • Share prices have climbed more sharply than earnings. We thus foresee limited potential from current levels.
  • The quarterly corporate report season has been better than feared. The low earnings expectations have been exceeded.
  • We are sticking to our forecast of low single-digit growth figures for global earnings.
  • Fear of American health care reforms has held back the upturn in the health care sector, but valuations are attractive in a long-term perspective.

Nordic equities

Neutral to negative view on Nordic stocks
  • Risk appetite has increased sharply so far in 2019: risk of a sharp downturn.
  • China has been a leader in this year’s stock market rally, with Nordic companies also climbing.
  • Big differences in market sentiment between sectors – favouring industrials and convenience goods over forest products, banking and construction. However, we prefer forest products over industrials within cyclical sectors.
  • Banking shares are being squeezed by worries about money laundering.
  • Neutral valuations on Nordic stock markets as a whole.

Fixed income investments

Central banks continue stimulus measures
  • The US Federal Reserve is signalling an unchanged key interest rate in 2019 and 2020.
  • Sweden’s Riksbank will need to postpone its next rate hike until July 2020.
  • Credit markets are benefiting from the more dovish central bank policy stance.
  • Economic growth and undervalued currencies will provide support to emerging market bonds.

Alternative investments

  • Broad stock market upturns will provide support to equity long/short hedge fund strategies with positive net exposure.
  • Clear trends early in 2019 have generated a recovery for trend-following strategies.
  • Relatively sharp movements in the bond and foreign exchange markets are leading to mixed performance by macro funds.
  • Rising stock market volatility should provide return  potential for hedge funds.
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