18 May 2010 10:00

Investment Outlook: Investments in a debt-ridden world

Government financial problems in some European countries, especially the revealed fiscal chaos in Greece, have recently overshadowed an improved market climate with many positive macroeconomic signals. Although the outlook for risk assets appears good in a slightly longer perspective, by all indications the debt problems of the industrialised countries will influence market risk perception for a long time to come. Old truths are being put to the test, and what was regarded as low risk yesterday is not necessarily low risk today. The investment map will have to be partly redrawn.

With central government debt of more than 115 per cent of GDP and a budget deficit of nearly 15 per cent, Greece has scared the daylights out of the stock, fixed income and foreign exchange markets. Its fiscal problems illustrate the challenges that many Western countries face.

"One could say that we have reached a kind of plateau where markets and investors are catching their breath. The spring rally in risk asset markets ran into trouble when the Greek crisis began in earnest to assume the main role on the big dramatic financial stage. In a long-term perspective, we still believe that the underlying strength of the global recovery will persist," says Hans Peterson, CIO Private Banking and Global Head of Investment Strategy.

Despite growing public sector imbalances and economic burdens, the world upturn actually strengthened this spring. Among other things, purchasing managers in the United States, Asia and Europe have indicated that conditions have improved and countries such as China, Singapore and India have reported accelerating GDP growth. In the industrialised OECD countries, however, economic growth may slacken a bit later this year as the positive growth effects of fiscal stimulus measures and the inventory turnaround fade. The outlook for risk assets such as equities, corporate bonds, hedge funds and private equity nevertheless appears promising during the coming year.

The conditions determining what is high risk or low risk have changed, however, in a new financial and economic world characterised by debt problems and slow growth in the OECD, while the emerging markets sphere shows considerably better financial stamina and high growth.

"One has to ask what low risk actually is today. We believe that actual analysis of underlying driving forces is more important than it has been for a long time. For example, today it is more important to reduce leveraging in various portfolio assets than to apply traditional diversification between geographic areas," Mr Peterson concludes.

SEB is a North European financial group serving some 400,000 corporate customers and institutions and five million private individuals. SEB offers universal banking services in Sweden, Germany and the Baltic countries - Estonia, Latvia and Lithuania. It also has local presence in the other Nordic countries, Ukraine and Russia and a global presence through its international network in major financial centres. On 31 March 2010, the Group's total assets amounted to SEK 2,285bn (~EUR 236bn) while its assets under management totalled SEK 1,382bn (~EUR 143bn). The Group has about 21,000 employees. Read more about SEB at www.sebgroup.com.

For further information, please contact:

Hans Peterson, CIO Private Banking and global head Investment Strategy, +46 70-763 6921
Lars Gunnar Aspman, Senior analyst, Investment Strategy, +46 70-603 98 18
Elisabeth Lennhede, Press & PR, 070-763 99 16, elisabeth.lennhede@seb.se