SEB’s analysts warn that the latest statements from US President Donald Trump should be taken seriously. While a full trade war is not the base case, new tariffs could reduce European growth by 0.1 to 0.2 percentage points. This adds to geopolitical instability and increases the risk premium in Europe – something already visible in strong demand for defence-related shares.
SEB’s investment committee has responded by lowering risk exposure to 55 per cent in its latest House View. The decision reflects political uncertainty and the likelihood of profit-taking after a strong start to the year.
“The market is clearly long risk, which increases the chance of corrections,” Carl Hammer, Global Head of Asset Allocation at SEB’s Investment Management unit, noted.
He says hedging strategies include a short position in the US dollar, which has worked well so far.
Regionally, SEB has moved Europe to neutral, kept an underweight in the US and favours emerging markets. Europe is more exposed to trade tensions and security risks, while emerging markets offer attractive valuations, higher growth and a strong technology sector. These markets are also less affected by current tariff threats.
What could change the outlook?
A quick negotiated solution between the EU and the US would be a clear catalyst for increasing risk again. Global growth remains broad-based, and technological advances such as artificial intelligence continue to support productivity and earnings. Inflation remains a significant risk if it accelerates unexpectedly.
“Geopolitical risk is most probably the main risk now,” Hammer says.