30 Nov 2010 10:01

Investment Outlook: New capital market conditions - good potential for upward revisions in 2011

Activity is now accelerating in many parts of the world economy. While debt problems in southern Europe and Ireland as well as tensions in the currency market remain as negative elements, the risk of the previously much-discussed double dip recession in the US can essentially be written off. There is a good chance that the global economy will grow a bit faster in 2011-2012 than forecasters believed late in the summer. In addition, the valuations of most assets are reasonable and the potential returns are good. On the threshold of 2011, investors are thus being offered a wider range of opportunities, while emerging markets remain attractive.  

Ireland has become a major source of concern at the macroeconomic level - many observers believe that Portugal is next in line - and people are discussing the risk of a trade and currency war. Meanwhile we are forecasting global GDP growth above the long-term trend. Together with continued low interest rates and commitments from central banks to prop up weak growth in the industrialised countries, this will create good market conditions, especially for risk assets.

"We have now had about one year of 'range trading' - risk asset markets dominated by more or less sideways movements, including both upturns and downturns. Thanks to an accelerating growth rate, which is now discernible, it is time for the economic cycle to shift into third gear. Other indications of this are the quantitative easing programmes initiated by central banks in key OECD countries, persistent high growth and low core inflation in most emerging market (EM) countries and prospects of continued profit improvements and stronger balance sheets in companies worldwide. Nor should we forget that in the OECD countries, fixed investments and capital goods purchases were postponed during the 2008-2009 turbulence. So now it is time for many companies and households to replace old machine tools, cars, refrigerators and washing machines," says Lars Gunnar Aspman, Global Head of Macro Strategy at Private Banking.

As financial market prospects become brighter, risk appetite is increasing among investors. Although the aftermath of the financial crisis is still highly obvious to many people in North America and parts of Europe, other parts of the economic and financial world are healthy. The EM sphere lit up the macro darkness during the financial and economic crisis. The EM countries are continuing to shine, for example in terms of high demand - something that many Swedish companies are noticing in their order books and income statements.

"The global investor has to take a number of trends into account. First, there is now a gradual shift in the direction of more equities and other risk investments. Second, there is an increased search for alternatives to government bonds, which are perhaps on the way towards relinquishing their former role as a risk-offsetter. This in turn places new demands on investment processes, and the search for capable managers will become even more important," says Hans Peterson, CIO Private Banking and Global Head of Investment Strategy. 

"We cannot ignore the energy that characterises emerging markets. A larger proportion of world trade now occurs within the EM sphere, reducing its need for Western demand. Unemployment in these countries is comparatively low, while debt is small and saving is large. The EM countries account for nearly 50 per cent of total world GDP, adjusted for purchasing power, and this percentage is growing rapidly. In other words, we must pay close attention to these countries when discussing where to invest," Mr Peterson concludes.

 

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
Press contact
Elisabeth Lennhede,  Press & PR
+46 70 7639916
elisabeth.lennhede@seb.se

Ola Kallemur, Group Press Officer
+46-8-763 9947, +46-76-397 5466

SEB is a leading Nordic financial services group. As a relationship bank, SEB in Sweden and the Baltic countries offers financial advice and a wide range of other financial services. In Denmark, Finland, Norway and Germany the bank's operations have a strong focus on corporate and investment banking based on a full-service offering to corporate and institutional clients. The international nature of SEB's business is reflected in its presence in 20 countries worldwide. On September 30, 2010, the Group's total assets amounted to SEK 2,254 billion while its assets under management totalled SEK 1,343 billion. The Group has about 17,000 employees, excluding its retail banking operations in Germany. Read more about SEB at www.sebgroup.com.