SEB report: In today´s market, investing is a risky balancing act

8/4/2019 SEB report: In todays market, investing is a risky balancing act

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InvestmentOutlook September piv bkig - ivm gy

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2/37

3Investment OutlOOk - sePtemBeR

Contents

Sragy

rodcio..........................................................................................................................5

Sary ...............................................................................................................................Macro ary ...................................................................................................................

oroio ragy ............................ ................................ ................................. ................. 10

oroio coary: Modr rogra.............................. ............ 12

Th: Ua cooic par chag ior .............................. ............. 15

Th: A ary py cooic poicy ooi ............................. ............................. 1

Th: Ergig ar Th x graio .............................. ........................ 21

CL

Eqii................. ................................ ................................ ................................ .............. 23

Fixd ico ............................ ................................ ................................ ......................... 2

Hdg d ............................. ................................ ................................ ......................... 2

a a ............................... ................................ ................................. ......................... 30

ria qiy ................................ ................................ ................................ .................... 32

Coodii ................................ ................................ ................................. .................... 3

Crrci ................................ ................................ ................................ .......................... 3


3/37

4 Investment OutlOOk - sePtemBeR

Thi doc prodcd by SE coai gra arig ioraio abo i i prodc. Ahogh h co i bad o orc jdgd o b

riab, SE wi o b iab or ay oiio or iaccraci, or or ay o whaor which ari ro riac o i. i rarch i rrrd o,

yo hod i poib rad h rpor ad h dicor coaid wihi i, or rad h dicor raig o pcic copai od o www.b./di-

cair. oraio raig o ax ay bco odad ad ay o yor idiida circac. prodc prodc a rr id o ri.

Thir a ay a a w a ri, ad hioric rr ar o gara o r rr; i o ca, o ca xcd h iiia ao id. Whr

ihr d or yo i i crii doiad i a orig crrcy, chag i xchag ra ca ipac h rr. Yo ao ar rpoib or yor

i dciio ad yo hod away obai daid ioraio bor aig h. For or ioraio pa ir aia h ipid propc

or d ad ioraio brochr or d ad or rcrd prodc, aaiab a www.b.. cary yo hod adic aiord o yor idiida

circac ro yor SE adior.

i u x: A a cor o or raioa ria aig ofc i Lxborg, Sigapor ad Swizrad yo ar obigd o p

iord o h ax r appicab i h cori o yor ciizhip, ridc or doici wih rpc o ba acco ad acia raacio. SE doo proid ay ax rporig o orig cori aig ha yo yor proid cocrd ahorii wih ioraio a ad wh rqird.

pGoba Had o Sragy

+ 46 8 76 69

ha.pro@b.

L gu Goba Had o Macro Sragy

+ 46 8 76 69 7

ar.apa@b.

bqChi Ecooi, SE

+ 46 8 6 6

robr.brgqi@b.

vc d Oloroio Maagr ad Had o S Lxbrg

+ 6 6 7

[email protected]

Jh h

Sragi+ 46 8 76 69 8

joha.hagbarh@b.

Had o S Norway

+ 47 8 67 44

[email protected]

Cl bwGoba Had o Adiory Ta

+ 46 8 76 69 8

car.barow@b.

Ecooi

+46 8 76 69 4

rogr.ori@b.

kEcooi

+ 6 6

[email protected]

Dl gcEcooi

+46 8 76 69 8

dai.gcr@b.

ClFl cEcooi

+46 8 76 69 8

car-ip.robac@b.

Ccl kh

Goba Had o Coicaio Ta+46 8 76 69 9

cciia.oho@b.

Lz bwCoicaor ad Edior

+46 8 76 69 9

iza.braaw@b.

Thi rpor wa pbihd o Spbr , .

co ar bad o ioraio ad aayi aaiab bor Spbr 6, .

Sragy


4/37


Imbalances and systemic risks will require orce-

ul action. The market is concerned about lack-

lustre growth, and there are reasons to expect a

bumpy ride. Overall, this underscores the impor-tance o choosing a main investment strategy

ocus capital preservation or returns?

Nordic Outlook(Ag ), or coag a SE

Ecooic arch wri ha h word cooy i aggr-

ig dr db brd. Thy qaiy h rcio ri i h

ECD cori a pr c, i a cario o dc goba

growh ad wih a ri ha h ro projc ay bra dow.

Thi yp o a i a ad pa o abo

h difc iaio h word cooy i i. Mawhi or

a i o a h b o ry iaio ad achi rr

o capia, gi h ar picr w .

Th acia ar, o which w or ar a par, i

o o x i h had o poiica adr arod h

word. Thr i poia or boh h cooy ad ri a

o pror w, b dciio abo Eropa coopraio,

db aag ad rdcio i bdg dci b

ad i ordr o ror codc ad ri appi. y

qio oday i h: Wha ca poiica adr ad cra

bar achi?

Today w ha a ao iory wa rd i o i-

idicaor, which ar how bi ad priaidiida arod h word iw h r o h cooy.

o ca aca cooic oco ar br, b h

ora picr rai probaic.

Capia ar adap aray o probaic codiio

aigig pric o ri, procig h by a o

highr ri pri ad ig o a i i

gor bod. Thi igh ad h accopayig capia

ow io h xd ico ar ar diy aog h

rao or h xry ow bod yid praiig oday.

W ar i a pha whr orig db prob o boh

id o h Aaic ar haprig growh. Cycicay-dri

i ch a qii coqy r h ri o

bcoig highy oai. W ar doig a w xra pag

i hi Investment Outlooko h qio o how w hod

iw qiy i i hi yp o ar cia. Gi a

raiy high rcio ri ad h qio o how o or-

ca i rr, o rcio i dd.

Today prrig capia ad aiaiig ow poroio ri

ar h ai priorii o ay ci. Graig raoab

rr i a ordry way (wih iid oaiiy), wiho a-

ig xci ri, i bcoig or ad or ipora.

Th oio i o diriy acro a br o a ca.

y broadig or i o icd or id o i-

r ad by idiyig high-arig a i dir

ar iaio, w wi b w qippd i h poia

ri w oday hod ariai. worh addig i ha

i a corag or a aagr o dar r dow o o h

opporii h oc ar or. Scc capia pr-raio rqir dicipi, pciay i i o craiy.

Drig war growh pha, prob ari ad bco i-

craigy difc o aag. Thi r pa or

h, ad o aig h io acco i or aag-

ragi wod b wrog.

W ar iig hrogh a cooic cyc. a

drig growh pha ar a characriic o h rcory w

ar i. Thi, i r, ac capia ar ad ay ry or

paic. h praiig iaio, w h ha o oo a

h par ad chai bhid . Thi i o

Investment Outlookicd a cio ha dcrib h

ri ad, o o x, h rad opporii.

L co wih opporii: o par o h word

cooy ar coiig o grow a a hahy pac or -

iry ara rao ch a grar propriy, prodciiy

ad riig dad. h cio id Ergig ar

Th x graio, yo ca rad abo which cori

ar x i i o bco ajor cooic powr ad ar

payr who ic wi b i h yar ahad.

Hans PetersonCIO Private Banking

and Global Head o Investment Strategy

iduc

Keeping your balance in wobbly markets


5/37


Sary

exctd, 1-2 yas(annual avags)

rasoningtun isk

equitis 13% 19%

Neutral.Markets continue to be dominated by worries connected to negative headlines and speculation.

Risk appetite will not revert to normal levels without solid support rom macro indicators. While respecting

the relatively high probability o a recession, our main scenario is a mid-cycle slowdown. Emerging market(EM) equities are the most attractive, with low valuations, continued high economic growth and room to

ease economic policies as needed. Our assessment carries high risk.

Fixd incom 7%* 9%

Negative towards government bonds in the OECD countries. The yield spread (gap) between government

securities and corporate bonds has widened signifcantly. positive towards High Yield, where the gap is histori-

cally wide. Also good conditions or EM Debt, which should beneft ater a period o economic policy tightening.

Hdg funds 6% 7%positive. Hedge unds are generally in a signifcantly more stable situation, with greater preparedness toace an economic downturn. The prevailing market climate avours Global Macro strategies, among others.

ral stat 3% 4%

Neutral/Negative. Investors are searching or quality during this period o market turbulence, beneftingprimary markets and hurting secondary ones. Good potential or avourable perormance a bit urther

ahead.

pivatquity 19% 28%

Neutral. I todays growth orecasts prove correct, PE companies generally seem attractively valued. In

the short term, however, some caution should be observed. As long as uncertainty about both the eco-

nomic cycle and fnancial stability remains, the PE sector is among the riskier investment alternatives.

Commoditis 5% 12%

Neutral/positive. Continued strong demand or commodities rom emerging markets should be able to

deend todays price levels. Best outlook or base metals, gold and to some extent oil. Agricultural com-

modities are expected to move sideways. The choice o manager will be important.

Cuncis 4% 4%Neutral**.The USD and EUR will change leadership when the USD is questioned. EM currencies will beneftrom interest rate dierentials and continued high growth.

* Expected return on corporate bonds that are weighted about 1/3 Investment Grade and 2/3 High Yield.

** This opinion reers to the alpha-generating capacity o a oreign exchange trading manager.

XpCD ik D U (- y OiZO,

UL vg)

iOiCL ik D U

(pmb , O UgU , )

Cg i OU XpCD U

Equities

Fixed income *Hedge funds

Real estate

Private equity

Currencies Commodities

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

0% 5% 10% 15% 20% 25% 30%

Expected volatility

Expected

return

Hiorica a ar bad o h oowig idic: Eqii = MSC AC Word EU.Fixd ico = J Morga Goba G EU Hdg. Hdg d = HFX Goba Hdg

Fd USD. a a = SE a Ea EU. ria qiy = LX EU. Coo-

dii = DJ US Coodii T EU. Crrci = arcayHdg Crrcy Tradr USD.

-5%

0%

5%

10%

15%

20%

25%

2008-11

2009-02

2009-05

2009-08

2009-12

2010-02

2010-05

2010-09

2010-12

2011-02

2011-05

2011-09

Equities Fixed income* Hedge funds Real estate

Private equity Currencies Commodities

Fixed Income

Equities

Private equity

Commodities

Real es tate

Hedge funds

Currencies

-4%

-2%

0%

2%

4%

6%

8%

0% 5% 10% 15% 20% 25% 30%

Historical volatility

Historicalreturn

iOiCL COLiO

(pmb , O UgU , )

Equities

Fixedincome

Hedgefunds

Realestate

Private

equity

Commodities

Currencies

Equities 1.00

Fixed income -0. 1.00

Hedge unds 0.5 -0.2 1.00

Real estate -0.15 0.0 -0.05 1.00

Private equity 0. -0.35 0. -0.1 1.00

Commodities 0.2 -0.1 0.5 -0,10 0.3 1.00

Currencies -0.1 0.1 0.13 -0.11 -0.0 0.0 1.00


6/37


Sary

Wig i mOD pOCiO

Wig i mOD gOW

3%

2%

0%

0%

0%

15%

80%

0%

0% 20% 40% 60% 80% 100%

Cash

Currencies

Commodities

Private equity

Real estate

Hedge funds

Fixed income

Equities

Previous Current

27.5%

4%

5%

0%

0.0%

26%

27.5%

10%

0% 10% 20% 30% 40%

Cash

Currencies

Commodities

Private equity

Real estate

Hedge funds

Fixed income

Equities

Previous Current

Wig i mOD ggiv

OLLig -mO COLiO v. mCi WOLD

(U)

27%

0%

5%

0%

0%

18%

30%

20%

0% 10% 20% 30% 40% 50%

Cash

Currencies

Commodities

Private equity

Real estate

Hedge funds

Fixed income

Equities

Previous Current

-0.8

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

0.8

1

2 00 2 2 00 3 2 00 4 2 00 5 2 00 6 2 00 7 2 00 8 2 00 9 2 01 0 2 01 1

Fixed income Hedge funds Real estate

Private equity Commodities Currencies

-80

-60

-40

-20

0

20

40

60

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Equities Fixed income Hedge funds Real estate

Private equity Commodities Currencies

pFOmC OF DiFF CL iC

r i i i Ag .

- Hiorica a ar bad o h oowig idic: Eqii = MSC AC Word EU. Fixd ico = J Morga

Goba G EU Hdg. Hdg d = HFX Goba Hdg Fd USD. a a = SE a Ea EU. riaqiy = LX EU. Coodii = DJ U S Coodii T EU. Crrci = arcayHdg Crrcy Tradr USD.

Sorc:SE


7/37

8

mc u

Weak dynamism and the debt problems o

some OECD countries

...will lead to a clear downshit in growthduring 2012, and the recession risk in some

countries should not be underestimated

Osetting this will be a stronger EM sphere

and a slight OECD upswing in 2013

Th word cooic ooo ha rcy rd gooir.

La prig owdow do o o ha b po-

rary. ad, rpriigy wa cooic daa boh ro h

Uid Sa ad Erop aog wih orig db prob-

, aiy i h ro zo idica rraid growh ia ogr prpci a w. Th rcio ri i h US ad

ario Eropa cori hod o b driad.

Th rgig ar (EM) phr wi ao b acd, b o

a r dgr. Larg ira-rgioa rad, pciay i Aia,

ad i h d ari ap roo or cooic poicy

i ar wi aow a or adig.

w xpc h ECD idriaid cori o how

ighy rogr cooic growh. Th orc ha wi d-

cra h pr drig h coig yar wi a o o

x, ad db adj wi ha ad or progr.

Ecooic poicy ar ar ao iy o h ar

raiig i hir ooi. Mawhi codc i ro zo

growh wi graday ipro. Th iaio ooo appar

aorab ECD cor pric icra wi ow oic-

aby i giig oary poicy ar or xibiiy.

mj cc chll h U

Th US cooy i grappig wih ajor difci.

Tporary acor high rgy pric ad ppy dirp-

io oowig h Japa ara diar xpaid

o o h owdow i h r ha o , b dryig

cooic growh dyai wa ao xpcdy wa.

Thi, cobid wih h hi oward ca ighig a wa or ad or dob abo US poiica ro, ha pro-

idd a rao o owr growh orca. A ca poicy igh-

, rhr qaiai aig by h Fdra r (Fd)

i iy hogh iaio i diraby high oday. Th

Fd hod b wiig o hp ai cooic growh ad ry

o pr poy ro cibig. W prdic ha GDwi icra by . pr c hi yar, pr c i ad

or ha . pr c i .

Dcul lcl dl h u z

Th orig db crii i par o h ro zo i ow

dapig growh o a igica x, ad cooic

poicy ar ac difc dia. ay cori,

bdg-ighig i cary i ordr o ror acia

ar codc, b ch ar h adry ipac

bdg d o owr cooic growh. aio i crry

rahr high, b i hod a igicay by ary x yar.

Th prioy a-growig Gra cooy ha b hr

by h US owdow a w a by h prob o aciay

wa ro zo cori, b wi coi o how growh

w abo h ro zo arag. h ro zo a a who,

w xpc GD o icra by or ha . pr c hi yar,

by pr c x yar ad by . pr c i .

bh c c hdwd

Th riih cooy i acig car hadwid d o owrd

goba cooic propc ad h gor ogh ca

ariy progra. Tporary acor ha phd iaio

high abo h a o Egad pr c arg, b w

or a izab owdow i pric icra drig -

. Thi op h way or rhr qaiai aig by hoE. W prdic GD growh o oy pr c hi yar, a bi

or . pr c i ad arod pr c i .

dc cu wll l wll

Th Nordic cori ha airy good poia o wihad

h chi cooic wid ro whr i h word, ha

o raiy rog daa i r o bdg baac,

pbic cor db ad crr acco baac. ,

growh wi rh probaby a bow rd i o

o h cori. Thi appi pciay o Swd, who

growh ra wi b qzd by war xpor, pria co-

pio ad coparaiy igh ca poici. W orcaNordic GD growh o ighy or . pr c hi yar,

ha pr c i ad abo . pr c i .

A multi-speed world economy in -3

Investment OutlOOk - sePtemBeR


8/37

9

J wh wll uTh ara diar had a car ipac o h Japa

cooy. A a coqc, GD ha ow hr or hr

qarr i a row. Th ra o cooic dowr wa ar

i h cod qarr o , howr, wih po-diar r-

corcio wor big rcd i highr pbic ad pria

cor capia pdig. Ladig idicaor ch a h pr-

chaig aagr idx ow ao poi o a coid rco-

ry. y a idicaio, GD wi bgi growig agai drig h

crr qarr. Shor-r ri icd igrig rgy p-

py prob ad a difc copii iaio or xpor,

d o h rog y. a a who, w xpc GD o

dci by or ha . pr c, whi w or growh o

arod pr c i ad or ha pr c i .

m c wll l lTh ro o Aia rgig ar cori a gi o

h word cooy i ow bcoig or ipora a

growh wa i h idriaid cori. Th rgio

xpor chac wi wor d o h ECD owdow, b

ha o r icraig ira-rgioa rad, or i h

Aia EM cori ha bco dpd o dop-

i h Wr word. Doic dad i ao good,

pciay pria copio. Thr i roo or cooic

poicy i ar i dd. A cario o odray

owr growh i h rgio i h i h o iy.

Lowr dad ro h ECD cori wi coo Chia

xpor xpaio, b hohod prchaig powr wi ri

a iaio a. Grar roo or pria copio a h

xp o xpor ad capia pdig i ao i i wih o-

cia cooic ragy. W xpc Chia GD o grow or

ha 9 pr c i , abo 8. pr c i ad ary

9 pr c i .

dia i a arg, rahr cod cooy ad h ha good

poia o cop w wih a war idriaid word. D

o rcra prob rad o corrpio ad rgaio,

howr, dia i iy o achi growh ra ar pr

c. W xpc GD o cib abo 8 pr c i , abo

7. pr c i ad or ha 8 pr c i .

L c wh wll lw

Th Lai Arica cooi wi o rai acd by

h owdow i h ECD cori, b GD growh i h

rgio hod d p a ary 4. pr c hi yar, arod

. pr c i ad owha highr i . La yar,

Lai Arica iaio xcdd 6. pr c. Thi yar

ra ay arag a idg highr, b a idicaio ar ha

owha owr gr wi h oow. Thi a ha h

d or oary ighig wi a. Lai Arica wi co-

i o how ar br cooic daa i r o

pbic bdg dci ad db ha h ECD cori.

u wll ll l

Ear (icdig Cra) Erop wi cop raiy w wih

h cooic p i h ECD cori, hogh xpor

wi ow ad crrci ay r porary hoc. Ui

o Wr cori, Ear Erop rgd ro h

8-9 rcio wih rahr ow pbic cor db.

h ohr had, ay cori i h rgio howd raiy

arg bdg dci, b h ha hr d o igica

ariy ar. Frhr cbac ha igh hapr

growh ar ow o iy o b cary. Trad wih crii-

pagd ohr Erop ad h US i ao a. Th US

by ha pr c o oa Ear Eropa xpor.

Sowr growh i Gray which wigh pciay haiy

i h xpor ad GD o Cra Eropa cori i a

dcraig acor, howr. ra GD growh drig -

wi d p a 4- pr c aay i h hr argrgioa cooi: ia, oad ad Urai.

Th rcory i h aic cori ( char) ar hir

8- rcio i coiig, b propc ha b-

co gooir bca h xpor boo i adig rahr

qicy. Thir hr doic cooi ar graday ipro-

ig, howr. Thi yar w xpc GD icra o abo 6.

pr c i Eoia ad Lihaia, ad 4 pr c i Laia.

, growh wi dcra o .-4 pr c i a hr co-

ri, oowd by a igh accraio i .

uld wld c

Ar a yar pr c gr, w xpc goba GD (ad-

jd or prchaig powr parii) o grow by 4 pr c i

, . pr c i ad abo 4 pr c i . Thi

i rpr a airy dc ra, dpi a prob ad

ri (rd growh i h pa dcad ha b .9 pr c),

ad i d o coid good o i h EM phr.

W prdic ha GD wi cib or ha 6 pr c hi yar,

. pr c i ad ary 6 pr c i i h EM

cori. r qia orca or h ECD cori i

owha abo . pr c, a bi bow pr c ad or

ha pr c. Thi a ha h EM cori wi oo b

prodcig or ha ha o oa word GD.

Macro ary


bLiC UpWig mpOiLy LO mOmUm

Estonia, change in real GDP compared to year-earlier quarterLithuania, change in real GDP compared to year-earlier quarter

Latvia, change in real GDP compared to year-earlier quarter

Source: Reuters EcoWin

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

-25

-22

-19

-16

-13

-10

-7

-4

-1

2

5

8

11

14

Percent/year-on-year


9/37

10

pl

Old truths do not apply in the 2010s

Selectivity among regions and sectors is the

key to success

Time to buy? Yes! No! Maybe

Drig h pa dcad, oc ar ha gray b

a orc o o rr, b a i ao a orc o ay

prob. W rgg ry day o a a o

oc ar ro dir prpci. o hig

car: h od by ad hod ragy i which qi-

i wr rgardd a h oy ab orc o rr i o

ogr aid. Gi oday oai oc ar ad h ri

ha caio brig, w b copy awar o why

w ow har ad wha prpo hy ha i h poroio war aagig.

Soc ar ar a baror o a rgio cooic hah.

Fdaay, qiy i ar oy w p io

bi or h prpo o arig rr o h wor

prord i h bi. Copai ar daay

dpd o h ar i which hy opra. Hiory ha

how ha qii ar oadig oo or achiig r-

r i i o high growh, pciay har i copai

ha opra i a-growig cor ad i cori wih

good growh ad dop.

Drig priod o ow growh ad i rgio wih ow growh,

h oc ar i i a or rab iaio. Japa, or

xap, ha had ch prob or a og i. Aohr

xap i ha i h idriaid cori a a who, dr-

ig h r dcad o h cry h oc ar ha

had gra difcy i graig rr. Th MSC Word AC

dx, ard i Swdih roor (SEK), .77 pr c

ro h bgiig o o h d o .

cocio ro h abo obraio i ha oday w

b or ci i or qiy i. Gra

rh or xap ha goba qii away rr

7-8 pr c aay ar gro ipicaio ad o o

x pr i. o rqir raoaby og priod o

i or ch a a o pro corrc.

ordr o b cc wih or qiy ragi i oday

hard-o-aiga ar, w d a car prcpio o h

codiio i ario rgio ad cor. h wo prio

diio o Investment Outlook(Fbrary ad J ), wprd or cory aocaio od. Th prpo o hi

aayica od i o a br o parar o idiy

h rgio ad cor wih h b poia o gra

rr.

O qu l w

i i o by? Thi i prhap h o coo qio

w har a i adior. Th qio i xry

difc o awr, or ay rao. W ca idiy ar

cia ad rd ha ar br or wor or oc ar,

b ayig xacy wh h oc ar boo o (or, or

ha ar, wh i pa ad i i i o ) i a ipo-

ib a. Th cod ad prhap o ipora diio

o a i ha h qio ha dir awr dpdig o

who h ior i.

To a day radr, h righ i o by ay co ad go r-

a i a day, whi a ior ch a a irac copay

p a or or coa proporio o qii i i

poroio. Eryhig dpd o who yo ar. Facor i i-

horizo, wiig o a ri, h prpo o h

i ad h ior o owdg pay a ajor

ro i awrig h qio o whhr i i i o by.

m cl qu, uAig oday har aaio, ad cacaig r

ar capiaiaio bad o a ab cooic cario,

hr i rao o xpc high rr ro oc ar i

gra (rad or i or Eqii cio o pag ).

Th prob i ha oday w cao ay hr i a pr

c probabiiy ha cooic prorac ad goba

growh wi b ab. Grad ha w ar iaig goba

growh o abo 4 pr c hi yar ad . pr c i ,

b hi a icd a crai argi o rror i

r o rcio ri (which SE qai a pr c).

Dpdig o how probab or ai cario i, a iorhod h ha a ighy dir iw o orcad rr.

Thi, i r, a ha i ad whhr i i i o by, or

awr icd h proio ha h dryig cario

Equity strategy a highly individual issue



10/37

11

icd bi-i craiy abo rcio ri. Thi cr-

aiy ay, idd, arady b rcd i oday har pric.

w do ow o wha x h pric carry a crai

argi o rror a w, ic hy ar bad o ao wha w ow oday.

Today w ao ha h irig iaio ha dir r-

gio ad g o h oc ar how dir po-

ia. Tha ay ao r i dir awr o h qio

o whhr i i i o by.

Ergig ar, pciay i Aia, ha br growh po-

ia ha dopd, idriaid cori. Copai

bad whr i h word ao ha h opporiy o

a adaag o hi ia hir a o a-growig rgio.

Th w ha a i ragy diio. Copai

wih dir characriic ha aryig poia drig

dir priod ad dir par o h cooic cyc.

Drig o-cycica, di copai ha pr-

ord br ha ohr. Thi igh ipy ha or cycica

copai ay b i a araci poiio, ic xpca-

io ar ow ad h air o rpa. ab par

i ha i oai pha (i h pr o), copai wih

ab diidd pror br ha copai wih war

acia iaio. Today i ay ry w a o by

ab diidd payr, proidd or ai growh cario

pro corrc.

l d

Drig h pa ix oh, oc ar ha how ajor

caio aid a dowward rd. ay ca, oday

ior ar hardd ra (wih h acia crii i a

iid ory). A w yar ago, dowr o - pr c

wod ha grad crii hadi, whra oday hy

ad o qio abo a iab by . Whr ha

i i a qio ha w a poroio aagr hi

abo, ad whhr i i h righ i o i dpd gra-

y o a poroio yp o ada ad i ragy

obioy copd wih wha ar cario w or.

md i p

Modr Growh i a aag ada i which w ar

car wih ior capia ad o aoid xci o

o a. hi yp o poroio, w crry ha a caio

aid oward ri a. W ha a opporiy o

rr i a a ca ad ha o d o hod poiio

i qii pcicay. r objci i o gra rr

coi wih goba oc ar or a cooic cyc,

b wih owr oaiiy ad a dgr o caio abo

ior capia. A poroio i Modr Growh wi adidy

away how o oaiiy, ic i i id i dir

yp o a, ad by ryig o a adaag o h abiiy

o dir a o gra rr w dcra h c-

aio.

Today w ar chooig o hod a ow prcag o poro-

io a i qii, ic w or br ri-adjd

rr i ch i a hdg d ad High Yid

bod. Hr w ar chooig o b ry caio abo howw aag poroio capia. Wh i co o qii a a

a ca, w acor i h xiig rcio ri ad wigh

i agai poia rr ro ohr a ca. r dci-

io i o diriy away ro o o h rcio ri i h

poroio.

Modr Aggri (a ada i which w ca accp

or ri) w ha cho o a a grar cycica ri

ad ar h hodig a highr prcag o qii. addi-

io, w ar aig qiy poiio ha or cary rc

gographic xpor o rgio ad cor i which w or-

a rog r. pracic, hi a a oc o Aia adh Nordic cori.

Modr rocio i o dicd hr ic i i o x-

pod o qii a a. Mor ioraio abo hi ada

i od i dr oroio coary i hi i.

dl d

W ao aag radiioa ada ha ar priariy a

cobiaio o qii ad bod. Th aray icd

a highr proporio o qii, wih h opio o aocaig

p or dow dpdig o ar ri. Hr w ar cor o a

ra poiio oday, b wih o dowward adj

i rpo o h praiig cooic craiy ad high

ar oaiiy. W ar chooig o phai rgig

ar ad Aia raiy cary, ic w or h b

poia i ho cori.

Wh u?

A w ha rid o xpai, h righ i o ac dpd o

h poroio yp, arai ad ri appi. Today, ci

who ar prpard o i wih h praiig craiy ca

by qii or chapy ha wo oh ago. Thy ca

by har i copai wih ab diidd-payig hiori

a good pric. i poib o i pcicay i ara ad

crrcy rgio wih a owha highr probabiiy o harpric icra, o hr ar idd byig opporii. A

gra y o h qio o whhr oc ar wi

ri ro oday i difc o a ad carri a dgr

o craiy. or Eqii cio, w dcrib oday

aaio ad how h ar wi pror gi h ai

cario ad i SE cooic a. or wih

a og i horizo, a awar o ri ad oid xpric

ca d good bargai i oday ar iaio, b wih

h owdg ha hy wi h b iig wih coid

prob i Erop ad cooic craiy (rcio ri).

Ahogh a rcio i o or ai cario, h ri i -

rh hr.

oroio ragy



11/37


plc:md ip

mOD pOCiO

Mar rbc ad h iabiiy o poiica adr o d

oio o db prob o boh id o h Aaic ha

ad ior icraigy happy. T-yar US Trary

bod yid, which ood a abo . pr c a i May,

harpy drig h r ha o Ag o bow pr c a

ig ha ior ar owrig hir Arica cooic o-

oo. Siiar par ar od i Erop.

ordr o achi i argd rr o a - pr c abo

ri-r yid (hor-r gor crii), Modr

rocio ha b coraiy poiiod i riir g-

o xd ico crii, ch a High Yid bod

ad rgig ar (EM) db. Li o ay ohr a,

h ha b hr by gai ar i. h

xd ico a b-poroio, howr, w or h

gra ri-adjd rr poia i High Yid. Corpora

baac h ar ar rogr ha bor h 8 crii,ad copai ar h w qippd o ac ay dowr

i a. gai i coi ad ior bco

icid o a ri, howr, hr i a dagr ha i-

qidiy i h bod ar wi hri. ch a cario, High

Yid wi b adry acd r. Drig Ag, w h

cho o dcra or xpor o High Yid owha.

Gor bod id by rgig ar (EM) cori

ha o b a hard hi a corpora crdi ir i

h W. Coparig h acia iaio o gor,

EM bod oo or oid ha Arica ad coia

Eropa o b i or yid ao a h a a High Yid bod. Thy ar ao qod i oca crrci,

proidig a idirc xpor o EM crrci. Gi h

praiig ar iaio, hi hybrid ar xd ico

ad crrcy a h g or araci ha a

pr crrcy xpor. W ha h cho o rdc h

har o Modr rocio big hadd by crrcy a-

agr i ordr o hod or EM bod.

h hdg d b-poroio, w ha cho o icra

or CTA poiio owha. CTA i h ragy ha ha h

gra poia o gra rr i a gai ar

rd. Thi ragy icd a br o y arig boh

high ad ow ri. W ha cho aagr wih ow oaiiy

ad a good crii-priod rac rcord. r ra a-rad

hodig ha b did i ordr o ipro h poroio

iqidiy pro.

Gi h poroio chag, w bi ha Modr

rocio ca pror w dpi a or war goba

cooic rd ad ca prr capia i ar i- rai gai.

Sailing clear o fnancial storms

Hurricane Irene recently roared through New Yorks Financial District without causing any majormaterial damage there. At this writing, it is unclear whether the storm in the nancial markets has

passed there is a risk that we are in the eye o the storm. In our Modern Investment Programmes,

we are choosing to prepare ourselves or continued rough weather by reducing risk positions in our

portolios.

15%

2%3%

80%

Cash

Currencies

Hedge funds

Fixed income


12/37


13/37


oroio coary: Modr rogra

mOD ggiv

Fiacia ar raid ab or o o J ad Jy,

dpi worri abo gor db o boh id o h

Aaic. i appi rcid a harp bow a i Jy, how-

r, ad h dowgradig o h US orig crdi raig

i ary Ag riggrd rhr pii. Mawhi boh

US ad ro zo GD or h r qarr wa rid dow-

ward, howig ha h cooic rcory wa o a a a

rog a h ar had hogh. oiica obac i boh

Erop ad h US hogh dir i ar ar bocig

h chac o oig db prob, ad hi iaio i i-

pacig h cooy. A a r, acrocooi i gra

ar ow owrig hir orca or goba growh drig h

coig yar. SE orca i ha goba growh wi rach 4

pr c i ad . pr c i .

i appi draaicay drig Ag, ad h VX idx

ao ow a h ar idx cibd ro 6 i ary

Jy o abo 4 i ary Ag. ch a iro, ari a bco dprd a ior o a a

ch a god, gor bod ad Swi rac, which wr

iay h oy a ha ro drig h priod. Th

dop ao hr Modr Aggri. A a ca

i h poroio bw May ad Ag 6, xcp ha

hdg d ro argiay.

A idicad by or aay i hi pbicaio, or ai c-

ario i ha h word wi o a bac io a rcio. r

cocio i h ha h o w ha drig

h r hod b rgardd a a corrcio ad ha ri

a hod b i h r. Mawhi h craiy

i h ar a w a i cooi orca i -

ay arg, ad hr i a ii ri ha a or gai

cario igh od. Th or aggri ar o hi

poroio ji coid xpor o ri a, b i

id-Ag w cho o ii or r i ada

o rdc dowid ri i h poroio ad prr capia.

W rdcd or xpor o qii ro h prio 8

pr c o pr c o h poroio. r pria qiy

hodig (abo 9 pr c) wr did iry. or

qiy ragy, w ar ocig or cary o rgio ha

w bi ha good poia, ch a Aia ad h Nordic

cori. W ar ao icraig h prcag o coodi-

y-bad i.

h qii a ca, w or ha dowid ri i

argr or h ECD cori ha or rgig ar,

ad w ar aiaiig a 6/4 proporio bw goba

aagr ad rgig ar aagr. W ar ao rai-

ig or xpor o coodii, which i ha poia o

b ro growh ad w copio par i rg-

ig ar cori.

h xd ico b-poroio, High Yid bod i paric-

ar ha cord hadwid, b w ha copay

baac h rai rog. Ar hir cbac ad r-

rcrig drig 8/9, copai ar w qippd

or war cooic growh. roidd ha w do o d p

i a ghy rcio, corpora borrowig ha good poia

o coi graig rr. Ergig ar bod ar

ao araci, wih high copo ad good diricaio

characriic, ad ora w ar pig or poiio i hi

a ca.

To cra abiiy i h poroio aid coid ory

wahr, or iio i o graday icra h ro o h

hdg d b-poroio. Goba Macro ad CTA ragi

i paricar ha h b poia o ri h praiig

dowward ar rd ad gra rr. So o

h procd ro qii ad pria qiy wi hror b

id wih hdg d aagr pciaiig i h ra-

gi ad wih good rac rcord ad ri coro.

Ahogh w ha ighd h ai i h poroio, w ar

prpard o icra ri agai i h ar ooo brigh-

, or i h acia ar pric i a iprobaby gai

r. A pr, howr, w ha a wai-ad- aid

oward qiy ri, i h abc o ig ha r pro-

pc ha iprod.

5%

27%20%

30%

18%

Cash

Commodities

Hedge funds

Fixed income

Equities


14/37

15

h

The upturn is slow and very choppy due to

...the latest recession, black swans, sovereigndebt crises and special reasons

Financial investors ace new challenges

Th crr cooic pr bga i h r o 9.

Th pwig wa copicoy rog ha a ad ary

i . Th growh dcrad i h ECD idriaid

cori, wh h prio hi oward corpora i-

ory bid-p owd a h a i a h xry i-

aig c o ca poicy ar add. Aohr acor

wa h obra o h Eropa orig db crii.

drig h cod ha o , h US ad ohr ECD

cooi rgaid rgh a h hi o growh dri by

hohod ad bi dad prod cc.

Eary i , howr, h poii ood wa chagd by

draaic i h Midd Ea ad Norh Arica (MENA)

wih a accopayig harp icra i oi pric ad i

id-March by h ara diar i Japa.

Toppig o ar worri wa Ac i h Eropa or-

ig db draa, which odd hi r. Grc agai

payd h adig ro, b ohr acor wr ao orcd po h ag a ar aid qioig poigh a h

cooi ad ac o ay ad Spai. Mar ao x-

prd dob a o whhr h Frch gor acay

drd i op crdi raig ar Sadard & oor had

owrd h US orig db raig ro AAA o AA-.

For h rao, drig prig ad r hr wa a

w dip i h cooic cr i h US ad i ario ohr

ECD cori. Th harp oc ar id a i h -

r wa aiy d o highd craiy abo whr

h cooy i hadd. Thi ro wa rhr d

by orab po wi i h Eropa db draa.

Whra oi pric icra d o h MENA ad h

Japa ara diar ar xap o hoc wih a arg

ad prdicab cooic ipac cad bac wa

(ar h Araia bird) h orig db i Erop

ad h US i a coqc o h 8-9 acia crii.

cor hr ha b orig acia prob o

boh id o h Aaic or ay yar, b hy ha ca-

ad draaicay i rc yar. Th rao ar:

Countlessscalpolicyprogrammesaimedatpreventingthe

acia y ro crahig ar h Lha rohr co-

ap o Spbr , 8, which cad h pbic cor

o a or ac db prob ro h pria cor o a

prcdd x.

Ashortfallintaxesandotherrevenuewhentheeconomyw io r a bw a 8 ad prig 9.

Massivebudgetstimulusmeasuresinaneorttokick-start

a cooic rcory.

Unusual economic pattern challenges investors


UUULLy WObbLy COOmiC pFOmC


2006 2007 2008 2009 2010 2011

35.0

37.5

40.0

42.5

45.0

47.5

50.0

52.5

55.0

57.5

60.0

35.0

37.5

40.0

42.5

45.0

47.5

50.0

52.5

55.0

57.5

60.0

Global purchasing managers index

JPMorgan Chase & Co.

Purchasingmanagersindex(global)

It is more the rule than the exception that a rapid initial eco-

nomic upswing is ollowed by a deceleration, but the prevailing

upturn which began in the summer o 2009 has been char-

acterised by two conspicuous dips in the economic curve. Such a

choppy perormance is unusual.


15/37

16

Th w dip i h ECD cori pward cooic cr

ca pary by xpaid by h hoc o a wir ad prig

oi pric hi, h Japa ara diar ad h or-

ig db cri b hr ar ao ay idicaio ha h

dryig growh dyaic i war ha i o i drig

a cooic rcory. Th crr pr h how ig

o big xcpioay choppy i ar. A ow growh ra,

aog wih aryig cooic aciiy, dobdy icra

h ri o rcio (gai GD or a a wo coc-

i qarr) i o ECD cori.

lu l uu

Th ca o a rcio o a hir ipri o h

bq cooic pr. A h picr o h a

prcipio rcio drig 8 ad ary 9 wa h US

b-pri orgag crii, which qicy prad arod h

word hrogh ario acia ad cooic cha.

Drig h pa 4 yar, ECD cori ha xpricdor ha ra a cri, rig i dp cooic

p. Th bq cooic pr ha a b

ggih, ad i h crr o hy ha ao b charac-

rid by py o par prodcio capaciy i r o boh

abor ad ra capia (achiry, pri c.). Thi, i r,

ha d o ow co ad pric prr.

Sch cooic pr ha poddd aog abi owr

ha rd growh ad ha coid or a raiy og

i ha o h abc o orhaig dci, paig

h way or ry ow ir ra drig a ghy priod.

Drig rcori ar ohr yp o rcio or xa-

p ho cad by harp ir ra hi, or xpi

coodii or arg wig i h iory cyc h

hoig ar ha ay b o o h rog growh

gi. Wh rcio ha b cad by br ra

a bbb, h hoig ar ha iad haprd h

pr, which i h ca oday. Th ai rao ha b

arg rp iori o ho ad ogh crdi approa

proc by ba or boh byr ad r/bidr d

o arg crdi o drig h prcdig dp dowr.

icd h wh

Aohr rao why pr ar bbb rcio hab ow ca b od i h acia bhaior o ho-

hod ad bi. Wh hir baac h rapidy

hri d o aig oc ar ad propry a, hir

a racio i o boo hir aig ad rdc hir db.

Th r i wa xpaio i pria copio ad capi-

a pdig. Thi growh-haprig proc ha ay c-

iad a cop o yar ar rcio b ha h o

coid a diiihd iiy or qi a og i.

Sggih cooic rcori a ow abor ar

ipro. Ucrai job ad ico propc, i r,

xpai why og ar rcio, hohod ha abaidro byig prg o h dri o cooic growh.

Ar prio bbb rcio i ECD cori, h d

o ror ca ordr ad rgh baac h i h

pbic cor ha o b xciy arg. Howr, h op-

poi i r hi i arod, d o draaicay caaig

gor acia prob.

h pac o a w yar, crii-pagd ro zo cori

ad h UK wi ip bdg ariy ar i h

rag o - pr c o GD. h US, bdg-ighig

wi caa bgiig i . h ECD cori a a

who, ariy wi d p a -. pr c o GD boh i

ad a izab drag o growh.

Aid ro big copicoy ow, h ECD cooic

pr ic h r o 9 ao o coi o

ario ii-cyc, which i rahr a. h how a

par ha ca b dcribd a wo p orward, o p

bac. Wha, h, i bhid hi cooic wobbig?

h wl c xpaaio i h wid gap bw codiio i h

ECD cori ad h rgig ar (EM) phr.

Worri abo h EM cori ha aiy cocrd hir

xciy rapid growh ad h ri o cooic orhaig.

Whi rogr goba dad ha bd h wa ECD

rcory, i ha iad pod a orhaig hra i h EM

phr, ad whi owr goba growh ha hpd coo dow

h EM cooi, i ha iad word cooic wa-

ad pbic dci i h ECD cori.

Mawhi i i ay difc o pr a cary ba-

acd abiiaio poicy. h ECD cori, h co-

oic poicy ooi wa argy pid wh bdg dci

ad gor db wd. aacig bw i

d ad acia ar dad or ar-rachig bdg

ighig ha b difc. h EM phr, hr ha b

a baacig ac bw or o dcra growh ogh

o rdc orhaig ri ad o r ha h coo-

i do o ri a hard adig.

Th: Ua cooic par chag ior


OUig C bO Lp D iD gOW


1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

0.25

0.50

0.75

1.00

1.25

1.50

1.75

2.00

2.25

2.50

0.25

0.50

0.75

1.00

1.25

1.50

1.75

2.00

2.25

2.50

Millionsofunits

Millionsofunits

Housing starts

Ater US recessions caused, or example, by interest rate hikes

aimed at combating excessive infation, residential construction

has oten been a powerul recovery engine, as in 1991-1992. The

main reason or the latest recession was the burst sub-prime

mortgage bubble, which means that the countrys housing sector

is instead still a drag on economic growth.


16/37

17

addiio, iid prodcio capaciy i h coodii

d a ha h draaic MENA cad oi pric

o yroc. A a r, worri i 9 ad ary

ha hr igh b daio (gray aig pric) wr

rpacd by ar o iaio i a ad ary . Sch

arg hi i pric ad xpcaio aray ha a car

ipac o h acia ar, a w a o h acio o

copai ad hohod.

ccll ull huhld

Sow cooic pr i h ECD cori, aog wih

a abor ar ipro, a hohod r-

ab o rgy pric icra. Sch icra rdc hir

prchaig powr ico ar iaio ad ax. Thi ay

b o by ax c or xpadd gor bidi, or

by icra i hohod borrowig ro ba. drig

h praiig pr, h roo or ax c i qi a ad

ba ar ry rrici abo dig. Th, hohod

ha aiy qzd or xpadd hir copio ia accordio a rgy pric ha ri or a. Mawhi

hir aig abiio ha b rahr ab.

La b o a, ajor gor acia prob ha

occaioay riggrd acia ar roi ad aig

har pric, darig h ood aog hohod ad

bi a w a rig i owr cooic orca.

Sch icio circ characrid h cod qarr o

ad h r o .

A daay ry ow cooic pr, copd wih a

caig growh ra, po a ri ha h pr i h US

ad crai Eropa cori ay di o ad a rcio

wi h oow.

uc dcl hld

hi cox, h a pd cocp i ia. h aia-

io phr, i a ha i a aircra ha owd o a crai

pd, i wi aoaicay coi o o pd ad wi -

ay crah. Traad o h cooic phr, i a cooy

ha owd o i a pd, growh wi graday dcra

rhr ad h ay r io hriig GD h bgi-

ig o a rcio.

A aayi ro h Fdra r (Jry Nawai,Forcaig cio Uig Sa Spd, Apri 4, )

abo h US cooy how ha wh GD growh ha

a a bi bow pr c (aaid), i ary pr c

o ca ic 947 rcio ha occrrd wihi o yar.

ohr G7 cori icdig Araia, h corrpodig

probabiii ar ar.

Drig h cod ha o , Arica GD growh wa

abo . pr c. Drig h r ha o i dcrad

o oy .7 pr c. Jdgig ro hiory, hi iga a rahr

arg ri o a ipdig rcio. SE rh b-

i ha h o iy rd i i a coid cooicpr i h US ad h ECD cori a a who, or -

ra rao:

Theadverseeectsongrowthearlierthisyearduetorising

rgy pric ad h Japa ara diar ar adig.

WhileitistruethatgrowthisslowingintheEMsphere,the

dcraio o b rahr g ad h ra o pric i-

cra wi graday a drig h coig yar. Thi wi gi

EM cra ba rao o ow h pac o hir oary

ighig a iaio ow.

CyclicalsectoractivityintheOECDcountries,whichusually

acco or o o h dci i dad drig rcio,

i arady rig a ow pd (pciay i h US) ad ca

hardy a ry ch or.

Americanhouseholdshavealreadygreatlyloweredtheir

db, ad h iaio i h cory baig ad crdi

ar i baiay br ha i 8.

Corporatebalancesheetsandincomestatementsremainrog. ro a adig cooic idicaor ay a

baiay i h r-p o rcio, which i by o a

h ca oday. h US, h ra o pro icra pad i

a 9. Hioricay, ar a pro pa i ay a or

ha or yar bor a rcio bgi.

SE ia h ri o a rcio i h ECD cori a

pr c, whi a cario o a rwd ad or aig

accraio i growh ha a pr c probabiiy. r ai

cario which ha a pr c probabiiy i ha h

coig yar wi b characrid by a cooic owdow,

b o a rcio.

Cclu fcl :

Theeconomicupturnwillcontinuebutwillslowduringthe

coig yar. Th og-r rd or ri a i i pward,

b co o igicay owr growh i a ha dr-

ig h cod ha o 9 ad ary . Th corraio

bw a ar wi b rahr arg, w io h

pr.

Thewobblinggrowthratepattern,withtheaccompanyingabrp xpcaio-dri p ad dow i ar, wi

gi pop rao o oow hir i or aciy

ad o diriy hir a i ri r io ario poia

orc o rr o ry ry o h oc ar.

Theroleofoutperformingregioncomparedtoworldindices

ow o hi bac ad orh bw h ECD ad EM

cori or o ha prioy. A hi wriig, hi ro i

big hd by h EM phr.

Th: Ua cooic par chag ior



17/37

18

h

What will be the eects o the remaining

economic policy tools?

Where do we go rom zero interest rate policies

and synchronised global debt problems?

Can the solution be ound in unconventional

monetary policy?

or h goba db crii bro o i 7, gor,

cra ba ad cooi had driad h c

o h acia cyc o ri bid-p, aiy i h Wr

word. Thy had ao oriad h growh dyai

ad prodciiy o cooi. Today cooic poicy arac hr ai prob: ) rp capaciy i h cooy

xci poy i paricar i h arah o

goba rcio, ) i-icop rpair o acia cor

baac h ad ) cary rrcrig o orig

ad hohod db. Erop h iaio i copicad

by a ihd cooic ad oary io, which add

poiica prob.

Cl d ucl l

Th cooic poicy ooi icd boh coioa adcoioa way o aagig cooic owdow.

Fica poicy ca bco or xpaioary, ihr by a

o aoaic abiir (ch a gra/xpdir ha

icra wh growh ow) or dicrioary dciio (aci

ar aid a icig h cooic cyc). Moary

poicy ca hp ai cooic growh; cra ba owr

hir y ir ra (coioa oary poicy), or hy

xpad or ar h rcr o hir baac h (co-

ioa poicy).

Udr or ora cooic codiio, h gai ipac

o a cory ca ighig o growh i od by a

br o circac. Cra ba ay ha rahr

ap roo o owr hir y ir ra i ordr o i-

a copio, capia pdig ad o o x a

pric. A cory crrcy i wad a a r o hi

poicy ix. A war crrcy, oghr wih a goba cooy

ha i xpcd o how good growh, proid h xpor

cor wih a xra pward ph.

A nearly empty economic policy toolkit


Federal Reserve balance sheet Credit multiplier (money supply/monetary base) Source: Federal Reserve

04 05 06 07 08 09 10 11

0.75

1.00

1.25

1.50

1.75

2.00

2.25

2.50

2.75

3.00

3

4

5

6

7

8

9

10

11

Creditmultiplier

USDtrillion

gOWig FD bLC D

ikig CDi mULipLi

The balance sheet o the US Federal Reserve is

expected to swell urther due to purchases o

American government securities, but because o

a weak credit multiplier the money supply in the

economy is growing today by only one tenth o the

corresponding expansion in the monetary base.


18/37

19

Udr praiig codiio, wih iay zro ir ra

poici i ay cori ad a goba, ychroid db

prob i ajor Wr cooi, ir ra cao

b owrd ad h goba cooy cao hp dri growh.Nor do crrci ha roo o wa. addiio, a br

o h word ajor cooi ha hard-prd gor-

ha ar dig i difc o ph hrogh hir poici

a ho.

Fica i ar, or xap i h or o dirc

aid o h di hohod ad pbic cor i-

, ar h o ci oo or qicy rrig a

cooic owdow ad booig growh. Gi oday high

gor db, hr i aray i chac o doig

hi. Howr, poiica adr ca icra hir roo or

aor i w hor-r i pacag ar o byoghr di- ad og-r co-cig, i ordr o aoid

oig h codc o h pbic ad ig h cory

crdi raig dowgradd by raig agci.

Aoc o r ax o copio, a p ha

or xap h US i big rgd o a, ay ao ad o

highr growh i h ar r i hohod accra

copio i ordr o aoid highr r pric. h

oco o ch a ragy i crai i igh o arady high

gor db.

Ucl lc

Thi i why cra ba ar ow big gi h hay r-

poibiiy o ig coioa oary poicy o i-

a growh ad aoid a w rcio.

Th prpo o cra ba coioa oary poicy

i o ipro h cioig o h ar ad proid iqid-

iy i ordr o rgh h oary poicy raiio

chai ad h h ci o h ir ra

wapo, abii iaio xpcaio a co o pr c

ad rdc h ri o acia iabiiy. To o x,

coioa oary poicy ay ao b idd o

abii h pric o a, or xap qii, drig a

crai priod.

Th Fdra r (Fd) i h cra ba ha ha go

rh i appyig coioa oary poicy (qa-

iai aig or QE). rc yar, aid ro owrig i

y ir ra o iay zro pr c, h US cra

ba ha pracicd xpaioary oary poicy by ig

h ba baac h grow by abo pr c ad

priodicay ao chagig i rcr. Th Fd ha do o,

aog ohr hig, by prchaig orgag ad gor

crii (QE i Nobr 8 ad March 9 ad QE

i Nobr ). addiio, h Fd ha id pdg

o aiai i zro ir ra r or a xdd priod

ad o rcy i a pcid da: id-.

hr oo ha rai a h Fd dipoa ar prcha-

ig or crii; o ar i hodig o gor

crii ha icrad i wo rod by USD biio

ad USD 6 biio. rcha o gor crii arcoiig, howr, a h Fd rci h procd o ohr

arig crii. Th Fd arg i or i oa hodig o

crii o rai ab a arod USD .6 riio.

A w QE rod wi probaby icd prcha o US

gor crii oaig ary USD riio. Addiioa

opio aaiab o h Fd ar o by crii wih ogr

arii, or og-r xd ir oa, ad co-

ica a arg gr or how ch h oary ba

hod grow yar-o-yar, proi iid irio a

crai yid o gor crii ad wa h

doar by prchaig orig gor crii.

Cl lc

For h Fd, h prpo o coioa oary poicy

ha chagd characr owha drig h pa - yar.

Th d o brig dow ir ra ad/or ipro h

cioig o h crdi ar i o ogr priary. Today

US ho orgag ra ar a hir ow i yar. Th

oro growh o h oary ba ao a ha h

daa or dig ad iqidiy ar arady i pac.

Howr, d o a wa crdi ipir, h oy ppy i

h cooy i growig by oy o h o oary ba

xpaio. Thi ca probaby b xpaid boh by coi-

d caio aog ba ad ow crdi dad i a wa

cooy.

Th Fd aiai ha h c o QE ad ohr ar

ar qia o y ir ra c o - bai poi,

which (a big qa) wi boo growh ad iaio

ad cra abo 7, w job drig a wo-yar priod.

Th o rpri ha b ipora i gaiig a poi-

i c ro QE-QE. So obrr aiai ha hir

prpo i ao o wa h US doar. Thi i wrog. Sch a

ragy wod a h cory chac o aracig abo

4 pr c o h word oa aig rp or difc

ad dri US ir ra highr. wod ao corogh iraioa criici. Th ac ha a iid qaiy o

w doar ha h y d o a wa crdi ipir

ao wa ha hi, ahogh pychoogica crrcy -

c hod o b driad.

Ld l d ul wh

Th diadaag o coioa oary poicy ar o

rog ogh ha cra ba hod abai ro ig

i. cor zro ir ra ad gro oy ppy

ca icra h ri o w acia ibaac. Low ir

ra or a og priod ao a a day i baac h

rpair i h acia cor ad rrcrig o gor

ad hohod db. addiio, h baac h o cra

ba bco icraigy xpod o ir ra ad crdi

Th: A ary py cooic poicy ooi



19/37

20

Th: A ary py cooic poicy ooi

ri, a w a crrcy ri o h x ha h ba

ir i h orig xchag ar ad bid p arg

crrcy rr.

Cra ba ay ao xpric gai ir

ico i h y ra ri, icraig h co o h iqidiy-

aborbig opraio ha ay bco cary whi hir

hodig o crii gra ow rr. Eay widig

dow hir gigaic poroio wi a i. i crii

bor ariy, a cra ba ay ao r capia o.

Th ri o growig iaio prr d o coioa

oary poicy i iid. Th oary xpaio ha

ha occrrd o ar ha had a iid ipac o oy p-

py growh. Thi i xpaid by caio dig ad ow

dad or borrowig. Sdi by h a or raioa

S (S) ao cor wa aociaio bw

chag i cra ba baac h ad oy ppy

growh a w a iaio. Th iaio ri i h ow. hoy ppy hod icra i a dird way, cra

ba ha h cary oo or draiig h baig y-

o rp iqidiy.

Ld cl lc u

Cra ba dobdy ha ry arg baac h ca-

pacii or ipig coioa oary poicy, or

xap by prchaig crii. Thi ao icd h po-

ibiiy o byig h gor crii o crii-hi co-

ri, a h Eropa Cra a (EC) i doig oday. Th

EC prcha o gor crii ar ar aag-

oo ad ao iiaby a dig ir or go-

r, i h EC ac oy i codary ar. r

cocio i ha h ri cacaio ha cra ba a

bad o h abo arg hod ad h o go ahad

ad aiai high aciiy wh i co o coioa

oary poicy, pciay i a iaio whr hr i iid

aorig roo or ca poicy.

Fiay: Wihi h rawor o coioa poicy, b

pary oid h ri o cra ba, i h poibiiy o

irodcig ario yp o rgaory ar ha ipy

dirc oary aid o ario par o h aioa cooy.

Thi oo i o oy coioa b ao cororia.

w d or i a word whr h iq ogica.

For xap, crii r ca b copd o i a

crai prcag o hir poroio i ario yp o crdiir (boh gor ad pria) ad h ir

ra ca b by rgaory ahorii. Ldig iiio

ca iwi b copd o or oa accordig o prd-

rid codiio o cd cor o ociy a hi o

ab h word o rr o a owha or ora a.

ET EGQVST


Money supply determined by monetary base and credit

multiplier

r i h baac h o cra ba ha icrad a

or cori ha cho xraordiary ar i ordr o

pr coioa oary poicy aogid radiioa

ir ra poicy. Arig h rcr ad/or iz o a cra

ba baac h ac h oy ppy i h cooy.

Uiay, iaio ay ao b acd i h oy ppy

xcd h ppy o good.

ipy, h (M) coi o wo par: h

qaiy o ba o ad coi i circaio p h iqidiy

rr ha ba aiai wih h cra ba. Th M ca

b dcribd a big h aca cor or craig

oy i a cooy ad i pr c corod by h c-

ra ba hrogh i ario ar opraio.

h oy ppy, or h aaiab a o pay i

a cooy, i icd o oy by h cooy d or

phyica ba o ad coi, b ao by how ab ad wi-

ig h baig y i o i iqidiy rr wih h

cra ba o xpad dpoi ro ad dig o h pbic.

h cd ull (CM) ar how ch oy ow

io h cooy ar h cra ba ha icrad h M,

or xap a o i coioa oary poicy.

h crdi ipir i , hi a ha i h cra ba

ha a p o icra h iqidiy rr o h baig

y by , h oy ppy i h cooy icra by

,.

Th chag ha ario cra ba ar acig oday i ha

h CM i wa a a coqc o boh wa dad or

borrowig ad caio o h par o ba. Thi a ha

h M icra by ry arg ao o ha h dird

c o h oy ppy. Th CM wi ay orai,

adig o a icrad oy ppy wiho a cra ba

chagig h M. ha iaio, h cra ba rdc

h M i ordr o o icra h ri o r iaio.

h cra ba ha ci oo or hi.


20/37

21

h

Emerging markets playing an ever-larger role

in nancial markets

Rising consumption will provide extra uel or

economic growth

Sensitive to declines in risk appetite

Th or C cori (razi, ia, dia ad Chia) ha

bco icraigy ipora payr i h goba acia

ara. Th acia crii o rc yar ad h irab

gor ac o ay ECD cori ha hpd

accra ad riorc h ic o h C cori.

Thr ar ay idicaio ha i abo yar, Chia

har o h word cooy ay b a arg a ha o h

Uid Sa ad ha ar aohr yar h C co-

ri, a oghr, wi cach p wih h G7 cori. For

o i, razi, dia, ad Chia ha b ighig hir

cooic poici o pr orhaig, wih h ai o i-

ad ayig h grodwor or oid og-r dop.

Chia i paricar i how ig ha h or ha a good

chac o ccdig.

h rgig ar (EM) phr, howr, hr ar ohr

cori ha owha orhadowd by h big or

ha ad ad ar coiig o a ajor progr, boh

cooicay ad rcray. Thy ar oi cad hNx , growh ar or roir ar. A pr

hy copa o cori (hogh h Nx

obioy rr o pcic cori). Aog hir

characriic ar gray iprod poia or growh,

coid icra i har o goba GD ad riig propr-

iy, pciay icrad copio o good highr p i

h a chai (iio, rrigraor, car c.). So o

h cori ao ha aorab dographic, wih a

arg prcag o yog pop. Thi i poii boh ro a

abor orc ad copio adpoi. L a a bri

oo a o o h cori oid o h C qar i

which w or xra opporii.

L ucl

Aia hr ar a br o cori ha dora good

cooic poia. Soh Kora i iwd by ay obrra a dopd cory, o a EM cory, ic i i qi

adacd i boh i cooic ad rcra dop.

Expor aog h croic, car ad chica ar

ipora o h cory cooy. Thi r worri

abo h cooy h cad h Kora oc ar o

a harpy ary i Ag. Howr, h Kora cooy i

o ory ii o h goba owdow, ic or ha

ha o i xpor go o EM cori. Doic dad ha

accod or a icraigy arg har o GD ad i ao

howig coid rgh.

Via cooy ha prord rogy i rc yar,ad i GD grw by ary 7 pr c. Aog h orc

ha ar driig hi growh ar ab doic dad ad

good xpor o. Forig dirc i ha ao

cciy icrad. D o riig wag i Chia, ay

copai ar chooig o o prodcio o ohr co-

ri, icdig Via.

Wih i iio ihabia, doia i o o h o

popo cori i Aia. Eary hi yar, rog cooic

growh ad a ow bdg dci hpd h cory ar a

pgradig o i crdi raig ro Moody, h raig agcy,

ad i i ow j a iy bi bow Grad a

(-), which i h hrhod or doia o b caid

a a cory wih ow crdi ri. Sab doic dad i

h cory r a a br agai icrad goba ri.

ria copio ay rgh rhr wih h hp o

riig hohod ico ad a aorab dographic rd.

crad pbic cor pdig or irarcr ad ohr

dop projc wi ao hp brig abo or dirc

i. Th baac bw pria copio ad

capia pdig i ipora, ic o o h car ri i

riig iaio. Th pro xpcaio or doia copa-

i ar aog h high i h rgig ar phr.

Emerging markets The next generation



21/37

22

L c h ju bzl

Ar razi, Mxico i h arg cooy i Lai Arica.

Th cory i ao h word h arg cooy.

Sic Mxico i o o h word arg oi xporr, h oipric iaio i ia. Abo 8 pr c o Mxico xpor

go o h Uid Sa, o US cooic prorac i i-

pora o Mxico. Ar a priod o ggih cooic growh,

h cory propc ow oo brighr, aog ohr hig

d o grar orig dad. ria copio i i

aggig, aiy bca a raiy arg prcag o h

popaio ar poor. For o i, rid Fip Cadr

ha b wagig war agai ario drg car, which ha

d o icrad ioc i Mxico, b i ha ao rd i

o cc or h prid i h ba agai drg.

Two ohr irig cori i Lai Arica ar rad Chi. r i a arg-ca xporr o ir, coppr, god

ad zic. rc yar, r ha ad ajor dop

progr wih high growh, ow iaio, good acroco-

oic abiiy, rdcd orig db, bdg rp ad

ipora ocia progra. Th cory ha ao b

pgradd o Grad a. Drig or o h pa

yar, h ria oc ar ha b h b i

Lai Arica. cy h cory cd a w prid,

aa Haa. or h cio hr wa craiy a

o whhr h wod chag h dircio o r cooic

poicy i cd. Ar h cio, Haa aocd ha

h wod i o ipro ico aocaio, b h ha dr-

cord h iporac o prrig growh ad abiiy. Thi

ha cad h ar o o x.

Sic i rr o docracy i 99, Chi ha ocd o

prooig cooic ror, proaci ocia i

ad op pbic adiiraio. cooy i ow aog

h a growig i Lai Arica, ry ch ha o

rog doic dad. Th cory ha a arg, w-

dirid acia y copard o ohr cori i

h rgio. Th y i rgardd a haig oid rgaio

ad origh, a w a a capaciy or riic wh acd

by cri.

Oh cu h quu

Aid ro h abo-ad ar, a br o ohr

cori h arig boc o i ago ad ar dah-

ig ahad a a a pac i h cooic dop rac. Aia, agadh wih i 7 iio ihabia o o h

word o dy popad cori a w a aia

(8 iio ihabia) ar howig araci cooic

dop. Nigria wa oc aog h rich cori

i Arica i r o GD pr capia. Th cory i o o h

word arg oi xporr, y i poor ic oy a racio

o i oi ico go o h gra popaio. pi o

hi, Nigria ha how rog GD growh i rc yar.

Thr ha b gra poiica craiy i h cory ic

docracy wa rirodcd i 999, howr, which ha o

ar cad o ior o b wary.

whu

Ahogh h abo-iod cori, ad ohr rg-

ig ar, appar araci i h og r, hr ar a

br o ri ha b a io acco, ic hy

ay adry ac dop:

Rapideconomicdevelopmentwillprobablyleadtoination

prr, ad iaio aag ay ha dird -

c i ario cori.

Reducedriskappetiteinnancialmarketssuchasweare

xpricig righ ow ay ao ad o arg capia o-

ow ro h rgio. Th ay qz hir oc ar-

, which ar a i a goba prpci ad h ii

o capia o.

Therearealsohighhopesthatcompaniesinthesecountries

wi dir good pro, ad pro diappoi h ha

arg adr c.

Aohr ri acor ha b highighd i h poiica

iaio, which i ar ro ab i a br o EM cori.

Thi ri i highr i cori wih a arg proporio o a-

corod copai. Fiay, i hod b poid o ha

ar rgardig coiiy ad poib poiica phaa ih cori ha diiihd i h pa - yar.


Th: Ergig ar - Th x graio

0

5

10

15

20

25

30

35

40

45

50

J

apan

WesternE

urope

SouthKorea

UnitedS

tates

Vie

tnam

Indo

nesia

M

exico

N

igeria

Medianageinyears

yOUg pOpULiO i my m

COUi

The chart shows the median age in a number o

countries and in Western Europe. Many emerging

market countries have relatively young popula-tions.

Sorc: Goda Sach


22/37

23

Equities have allen sharply rom already low

price levels

Are global growth and current risks correctly

priced?

Valuations are approaching 10-year lows

Wha a dirc a w a. A paraphra o rhyh

ad b igr Diah Wahigo Gray-wiig 99

i i wha prig o id wh ryig o dcrib acia

ar i ary Ag hi yar. Haig arady pricd i

ixd cooic idicaor ad robig bod yid i oh-

r Erop, ar ddy racd draaicay o wha

hy had i ac b wiig or w or a yar: Growig

db, ad h rgg o rdc i wiho jopardiig r

growh i o Wr aio.

Drig h r igh radig day o Ag h S& i-

dx pr c ad h Nordic VNX o 7 pr c.

Mar wr o iprd by h r dia poiica

ba i Wahigo or h db ciig ad h dra

bdg ciaig i S& dowgradig o i US or-

ig crdi raig.

Haig prioy iwd Grc, rad ad orga a h

ai xap o idbd aio acig ac chag,hy bga ocig o h widig crdi prad i ay

ad Spai, i h Eropa Cra a (EC) ay r-

ad i o h by id o bod id by h wo ar

aio. Mar h hid o ror o a dowgradig o

Frch db ad od dow Eropa, pciay Frch ba

qi draaicay (qii ad corpora bod).

Mawhi rid daa rad ha growh i boh US ad

h ro zo drig h r ha o had b ch

owr ha prioy hogh. Fr idicaor ch a h

hiadphia Fdra r bi ooo ry ard

poiig a a drioraig growh picr ro arady wa. Hc h word (cio) ha oc agai rd

or daiy ocabary. Today ior ha h o

8 rh i id, ad icraig worri ha w igh

b hadig or aohr yic crii dri by a iqidiy

qz ha od o ooig i h ar.

Eqiy ar bd ( char) a a coqc o a

o h abo acor, ad rhr draaic o ay

ha occrrd bw hi wriig i a Ag ad h da

wh yo rad h aric.

Looig a qiy prorac i dir goba rgio ad

ar, i i air o cocd ha h crr dowr ha

hi a ajor oc ar. h broad US idic, a o h

Nordic xchag ad o rgig ar (EM) xchag,

w ar ig dowr o - pr c. Thr ha ao

b big dowr or ohr a ca. Hc w ca

airy a ha ior bhaior i argy rad o ar

o a owdow i goba growh. Thi appi o o rgio

or ha ohr.

GD growh i idd dcraig. oh h ro zo ad

h US ar arady i a owr growh cario. ajor Aia

rgig cooi, which ha rd a h ai gi

o goba cooic xpaio, h br o ri acor or

Low valuations coupled with greater risk


qu

vOLiL pFOmC O F i y

World stock markets (index 100 = January 1, 2011) have been

wobbly, to say the least. Since July they have lost 15-20 per cent.

The US market has done best, while the OMX Copenhagen has

perormed worst.

70

80

90

100

110

Jan2011

Feb Mar Apr May Jun Jul Aug2011

70

80

90

100

110

Euro STOXX Fixed S&P 500 Index FixedChina Fixed OMX Stockholm 30OMX Copenhagen (DK) Norway OSE BenchmarkIndia BSE30 Sensex Fixed Russia Fixed

Sorc: Fac


23/37


Eqii

rdcd GD growh i hi r wa cooic poicy

ighig aid a ghig iaio ad cooic orha-

ig. Thi ri ha ow dcrad oaby.

w qu

Coordiad poicy irio igh iiia a rbod ro

airy dprd crr , b daa ha dora

growh i h ra cooy i dd i ordr o a dry-

ig ri ario ad brig riir a ch a qii bac

io poii yar-o-da rriory. Two qio hror

rai:

. Goig orward, wha wi goba growh b?

. How ch goba growh i pricd io h ar a crr

a pric?

i ry ipora o p boh qio i id wh a-

ig h copoiio o i poroio. Far o

owr goba GD growh ib i h crr co-oic cia, b i i qi aohr hig o a chag

i yor poroio bad o h apio ao. or

aig poroio dciio, i i cary o d o wha

ior a a grop xpc r GD growh o b. Ad how

ch growh i pricd io h crr ar?

So ry o awr h qio, arig wih h r

o. Wha wi goba growh b, goig orward? i air o a-

ha h awr i owhr bw AC/DC g-

dary roc og "Highway o H" (rad i 979), idicaig

a - dgd rcio, ad h or ow "ridg r

Trobd War" by Sio & Gar (rad i 969),

idicaig a idr cario.

oh ar gra pic o ic, b hy a yo i qi di-

r ood. Ladig cooi or goba GD growh

o arod . pr c i ad . Thi ia

a o cor o or rid Sio & Gar ha o h

gooir br o AC/DC.

Moig o o h cod qio: How ch goba growh i

pricd io h ar a crr ? Th highr h awr

o hi qio, h riir qiy i ar iy o b.

A hi poi w irodc a ip od howig h rd

o qii ad arig i raio o h S& idx dr-

ig po-war rcio.

Th od dcrib h raiohip bw owr arig

ad har pric o drig rcio. ao co-

par aaio i US qiy ar o US bod yid dr-

ig rcio. Th ar proid a idicaio o how pricy

qii ar, a oppod o a arai -yar bod.

Th dirc bw h yid o qii ad bod i

h crr iaio o gi a oid adaag o qi-

i. Ahogh qii ha ch owr aaio hi i

arod ha drig h dowr o ad 8, a o o

hi adaag i d o ow crr bod yid.

ryig o d how ch o a rcio h oc ar

ha arady dicod, a ip approach wod b o diid

h crr ar dci o 8 pr c by h arag d-

ci o 6 pr c drig a rcio. Th ar i crry

pricig i a 69 pr c probabiiy o a arag rcio

cario.

* Moig arig pr har.** Fd od = rd /E raio i -yar gor bod yid. Th Fd od how dryig a i h

oc ar . h bod ar.

Fl

dwu

h lu,

p/ *

id p/

/p

10-year

govt bond

Fed

model**

Share price

downturn

Earnings

downturn

1949 9.0 11.1 2.5% 8.6% 17.0% 3%

1953 11.0 9.1 2.7% 6.4% 11.0% 12%

1957 14.1 7.1 3.8% 3.3% 17.0% 22%

1960 17.5 5.7 4.4% 1.3% 13.0% 12%

1970 18.5 5.4 5.6% 0.2% 34.0% 13%

1974 18.1 5.5 6.6% 1.1% 46.0% 15%

1980 7.6 13.2 12.5% 0.7% 15.0% 5%

1982 9.2 10.9 12.6% 1.7% 27.0% 19%

1990 17.0 5.9 8.5% 2.6% 16.0% 26%

2001 28.0 3.6 5.8% 2.2% 37.0% 23%

2009 21.0 4.8 4.2% 0.6% 56.0% 45%

15.5 7.5% 6.3% 1.2% 26% 18%

Cu 15.5 6.5% 2.2% 4.3% 18%

Sorc: Fac, Ya, SE


24/37

25

Eqii


rigig h dci i arig io h qaio, o cod

arg ha ic arag arig i a rcio dci by

8 pr c ad arag har pric a by 6 pr c, h

69 pr c o h har pric racio cod b xpaid

hrogh h a i arig. Wih oc pric crry dow

8 pr c ro hir pa, w ca ddc ha ar x-

pc a arig dowgrad o . pr c (8 pr c

X .69).

cacaig wha goba GD growh cario a arig

dowgrad o . pr c ipi, i i o oo a h

corraio bw GD growh ad arig.

Th corraio idica ha aig GD growh o .

pr c, arig riio ca b xpcd o b ra ().

A arig dowgrad o . pr c (h crr ar

xpcaio accordig o or abo cacaio) corrpod

o word GD growh o .6 pr c. hod b od ha

h SE Eida od oy rr o arig i h Nordic

cori, whi h prio char i bad o US hiorica

gr. Noh, appid oghr, hy proid wih a

good idicaio o h awr o qio br wo.

Cobiig h awr o or wo qio i i air o a- ha, a crr , oc ar ar pricig i a

or gai goba cario ha cooi aicipa.

Thi cario ay o b xacy .6 pr c GD growh, b

i i craiy ch owr ha h .-4. pr c co

aog cooi. Th ar i diy o pricig i a

dgd goba rcio, b hi xrci hod proid

o coor a o wha xpcaio crr ar aa-

io ipy.

W wi ha o wai or rhr cooic daa bor w

h a oco o hi aga. Whhr or o h arag

ior, a oppod o h arag cooi, a owardAC/DC or Sio & Gar wi hror rai a op

qio.

Looig a aaio i raio o boh pric/arig raio

(whi y awar ha arig wi b rid dowward) ad

pric/boo raio, w d ha h crr pricig raiohip

ar co o -yar hiorica ow.

Thi i i rog cora o h pricig cario o h pri-

o wo ajor qiy ar dowr i ad 8. W

hror bi hr i good a i crr qiy ar

pricig. Araci aaio ao ay o r ior bac

o h arpac, b hy ha craiy prod a good ac-

or i apig o idiy dryig ri hrogho hiory.

Ucraiy ha diy icrad ic ary Ag. i

ry chagig o aay h crr ar iaio, b

o ar how ch iraday oaiiy w coi o ac,

or approach wi away b daay bad o aa-

io.

i o h i or big dd o rahr caioobraio ar warrad drig h coig w ad

oh.

A draaic ar racio cra w opporii. Wha

h opporii wi b hi i arod i oo ary o .

gDp D ig gOW gO D i D

The measurement points show the change in global GDP

compared to the change in operating income at 118 Nordic large

cap companies. According to historical observation, global GDP

growth o just above 3 per cent is required to generate growth in

the operating income o these companies.

y = 0.0377x + 3.1034

R2

= 0.4598

-1

0

1

2

3

4

5

6

-40 -20 0 20 40 60

Change in operating income

GDP

Growth

Civ miC vLUiO...

The charts il lustrate prices and expected valuations or Americas

S&P 500 index in USD and Europes Stoxx in EUR. Compared to

the stock market declines o 2001 and 2008, todays share price

valuations appear attractive.

5

10

15

20

25

30

35

40

45

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

600

800

1 000

1 200

1 400

1 600

1 800

2 000

2 200

P/E ratio 12 months ahead P/E 12 months ahead P/B

Price

5

10

15

20

25

30

35

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

100

200

300

400

500

600

700

P/E 12 months ahead P/B 12 months ahead P/B

Price

...D Civ UOp O

Sorc: Fac

Sorc: Fac

Sorc: SE Eida


25/37

26

High Yield well-positioned once the og lits

This summers debt and economic worries

have hurt risk assets...

...paving the way or historically low yields and

more monetary stimulus

Once the economic outlook becomes clearer,

High Yield will benet

Th r o wa ayhig b pac i h xd

ico ar. Th ar wa doiad by h Eropa

orig db aga, ghy bdg goiaio i h

Uid Sa, ig o cooic owdow i o idr-

iaid cori ad ri o orhaig ad cooic hard

adig i par o h rgig ar (EM) phr.

whra har pric py i Jy a a r o h

oig prob, h rd i corpora bod ar wa

i poii o boh id o h Aaic.

Jy, o progr wa graday achid i aagig h

orig acia prob i Erop. dg dicio i

Wahigo rd i a goiad coproi j bor

dra ac wr abo o hi h db ciig o Ag ,

y w aw a draaic oc ar id i ary Ag. Ar

a w day h High Yid ar ao rd a car dci

i pric a ri appi apprciaby. Mawhi ior

d o wha hy prcid a a a, caig h prico gor crii o ri (ad hir yid o a). Thi

wa ao r i h US, dpi Sadard & oor dowgrad-

ig o h cory crdi raig o Ag .

Th ai rao or h acia ar draa drig par

o Ag wr highd cocr abo h cooic o-

oo, wih accopayig dowward riio i growh or-

ca, a w a coid worri abo Eropa orig

db ad hir aag. i i h EM phr, howr,

wr prcid a haig dcrad owha.

acio ro cra ba wr o og i coig. Ari Ag 9 Fdra p Mar Coi ig, h

Fdra r aocd ha i y ir ra wa iy

o rai xcpioay ow a a i id- . pri-

o wordig o hi i wa or a xdd priod. Th

Fd ao hid ha i wa prpard o ach rhr rodo qaiai aig i h ri o a US rcio hod i-

cra. Th Eropa Cra a (EC) rd prcha

o gor bod id by ch cori a orga

ad rad. Th EC ao bga byig aia ad Spaih

gor bod. Aog ar cra ba, ho i

Norway ad Soh Kora abaid ro widy prdicd y

ra hi ao obioy i rpo o h ar draa.

L a ) a dowhi i goba growh drig ,

aiy cad by a war growh dyaic i izab por-

io o h ECD idriaid cori, ad ) propc o

baiay owr iaio, oc h c o arir co-odiy pric icra diappar ro h aiic x yar.

ha ca, hr i rao o xpc ha h priod o ra-

oo oary poicy i h ECD cori wi b ghir

ha w had prioy prdicd ad ha rhr oary

i ar wi b achd.

Major cra ba h Fd, EC, a o Egad (oE)

ad a o Japa (oJ) ar ow xpcd o hir y

Fxd c


UpCDD imULU by FDL v

Fed balance sheet Federal funds rate


2003 2004 2005 2006 2007 2008 2009 2010 2011

-2

-1

0

1

2

3

4

5

6

7

8

0.50

0.75

1.00

1.25

1.50

1.75

2.00

2.25

2.50

2.75

3.00

USD

trillion

Percent

The US Federal Reserve has launched two main rounds o

quantitative easing to help sustain the nancial system and the

economy. The Feds key interest rate is close to zero, and massive

bond purchases have swelled the banks balance sheet.


26/37

27

Fixd ico

ir ra rai hioricay ow i h d o or

ogr. oh h Fd ad h oE wi ao probaby ach w

qaiai aig by prchaig or gor bod.

h Fd ca hi wi prhap b i h rag o USD riio(h prio rod, QE, oad USD 6 iio). h

oE ca, w prcha ay oa arod G biio;

h ciig o ch prcha had raid chagd a

G iio or o i. Mawhi h EC wi prob-

aby coi o by gor bod id by aciay

wa ro zo cori. Th oJ ay w xpad i oa

aciiy or copai ad i progra or prcha o

acia a; h crry oa JY riio.

Sch oary poicy ragi by iia cra ba,

aog wih a owr iaio ra, wi aor gor bod

i h arg ECD cori. Th, i i, hi idica hayid o ch bod wi rai ry ow.

hr i ao aohr id o h ory, icdig ry arg

pbic cor acia d aig io acco po-

ib acio by cra ba ad propc o owha

br ri appi oc h cooic ooo bco

carr. Thi igh ad o o raocaio ro gor-

bod oward radiioa ri a: qii, corpora

bod c. h ar occr, i wi ad o owha highr

yid (owr pric) or gor bod.

Cud cu h yld

Dpi h acia ar draa drig h a r,

w ha iay cho o rai or xpor o corpora

bod, wih a oc o h High Yid (HY) g.

Aog y acor driig how h a o High Yid

bod wi chag i h r ar: ) h hah o ach

copay i r o baac h ad ico a,

) h yid gap (prad) bw corpora ad gor

bod ad ) h gra ri appi aog ior.

Th hah o copai aiy i h US i i ry good,

a rcd i hir arig rpor or h cod qarr.

Epciay ipora aog copai ha i HY bodi h rd oward rdcd db (br qiy/a raio)

ad a growig har o cah i hir baac h. Th

copai ha ao xdd h draio o hir bod

poroio, which a hir d or acig ha b

popod igicay. Th ri ha acia dir igh

ad o corpora barpci ha h diiihd.

W h wdd ld

Thi r arg-ca cooic ad acia worri

ha cad yid gap bw corpora ad gor

bod o wid. For xap, i h / g i h US

which coi o highy rad HY bod h gap icrad o

or ha 6 prcag poi i Ag. Sic h yar

hi ha oy occrrd o wo occaio: a -prig

ad a 8-r 9. Drig boh o h

priod, corpora baac h wad, ad h cod

icdd h Lha rohr crah (Spbr , 8) o-

owd by a prcdd acia ad cooic crii. ohr word, h crr iaio aog h copai i

ch br ha i wa h.

A yid gap o or ha 6 prcag poi idica ha

h ar i pricig i a 7 pr c barpcy ra aog

h high rad HY-iig copai. Thi ca b co-

pard wih h a barpcy aiic, abo . pr

c (-oh gr) ad orca ro h raig agcy

Moody ad ohr o abo pr c a h d o .

Thi i a idicaio ha oday yid prad ay w hri

igicay. h owr gr i h yid prad gor- bod yid i airy ab or ri oy ighy, hi

poi oward pric icra or HY bod. W ar aig

ha h yid o ch bod wi a or ha gor

bod yid ri, which iy.

wll d h yld c

Wha iay dri how HY bod i i

ohr ri a wi pror i ri appi, which dpd

o h cooic ooo. Thi i crai, b oc h og

i or crya ba ra a cario i which goba growh

ow oicaby i h coig yar, y p growig a a

dc pac ad accra i .

W h bi ha r gor acia prob

wi o abor h cooic pr, ahogh ior wi

ha o xpc h prob o ha a di dcraig

c o growh or a og i ad o coi occaioay

caig igica ar worri.


y mO Civ F WiD yiLD gp


1996 2000 2002 2004 2006 2008 2010

0

250

500

750

1000

1250

1500

1750

2000

2250

0

250

500

750

1000

1250

1500

1750

2000

2250

Basispoints

Yield gap between High Yield bonds and US Treasury bonds

Due to dramatically escalating market worries in August, with the

accompanying fight rom risk assets to government bonds, yield

gaps between US High Yield bonds and Treasury bonds have

widened greatly. Given more predictable and decent economicprospects, the yields on HY bonds are likely to all again, with

rising market prices as a consequence.


27/37

28

The actions o political leaders and central

bank governors on both sides o the Atlantic

will determine risk appetiteStrategies based on undamentals are at a

disadvantage

Revenge or CTA and Global Macro/ Trading

Sic h a i o Investment Outlook(J ), hdg

d prorac ha b wa. Mard a h HFX

Goba Hdg Fd dx i EU, hi a ca o . pr

c drig h cod qarr o .

ca o rc ar rbc, boo-p aay

bad o daa ar aig hor. A ha

b bad or o irpraio o acrocooic a-

iic ad ajor poiica o. Whhr h oc ha b

o h db prob o Erop ad h US, iaio ar i

Chia or pciay gra worri abo Arica acro

aiic, h r ha b io caio i ri ap-

pi. Thi i aig i air or o hdg d ad

igicay or chagig or ohr.

ow w ha cho o diid h hdg d ar io

or ai ragi:

EquityLong/Short

RelativeValue EventDrivenandDistressed

MacroandTrading

Wha h ragi ha i coo i ha h hay ar-

cia ha gray d hdg d aagr o baac

hir poroio. Th acio ar aid a iproig hir

prpard or a cooic owdow (i h wor ca, a

w rcio).

qu L/h

Th word oc ar ha had a ogh i rcy.

Eqiy Log/Shor, aagr (o o h wih og poi-io i qii) ha rd i a wa prorac: -.4 pr

c drig h cod qarr.

Voaiiy i hioricay high ad wi probaby rai high i

h orab r. Maagr ar h iy o rdc

hir oa xpor, h graday icra i a oaiiy a

agai. Sch a procdr carri h ri o iig o o acoidrab proporio o h pr oc aayi bad o

daa bgi o wor agai.

Eqiy L/S, b-ragi who aagr ac qicy i

rpo o hor-r ar o (radig) ar iy

o do raiy w, hogh a h o hy ar owha

haprd by ow radig o (coo drig r

oh ad a i o gra rbc, a wai-ad-

ar).

W ha a caio aid oward Eqiy Log/Shor ad

bi ha ragi ocig o h xd ico ar

ha br poia drig h coig qarr.

l vlu

ai Va aagr i xd ico prord owha

br ha hir qiy-orid coag i h cod

qarr, ic worri abo h goba acro cario did o

ac i i corpora bod ar i J.

J, arg oow ad owr i o w bod hr h

High Yid g, rig i ajor -o. Tho aag-

r who acd qicy i rpo o hor-r ar o-

wr rh ab o b ro h igh o

ar gor crii ad h prord br haor og-r-orid aagr.

Mawhi w rachd h d o Arica QE i

pacag, roig a arg by-id payr i US acia ar-

. Thi wihdrawa wi cra dirpio i iqidiy ad i

ow, which ai Va aagr ca a adaag o.

May obrr bi ha h rcio ri i h ECD

cori i pr c (SE ia i pr c). h

or piiic ar payr hod pro corrc i hir

orca, ragi wih a dgr o bi-i procio wi

probaby b. For xap, ch procio coi oriig ci yid, which ac a a br agai a poib

coid dci i bod pric.

Prepared or an economic slowdown

d ud



28/37

29

For h Crdi Log/Shor b-ragy, ajor caio i

ar ri appi cra opporii o idiy dra-

d xd ico crii ha ar drdy pd io

dowr ha ar or or cad by poorr iqidiy.Spcaio abo rhr qaiai aig ar ro

h Fdra r (ad poiby ro ohr cra ba)

i proppig p o a a owha aricia , ad h

h opporiy o d xd ico crii ha ar i-

ab hor-a cadida. Th ri-adjd rr o h

ragi hod b capab o rpaig ri-r ir i

h coig qarr.

W prr ai Va o Eqiy Log/Shor ad ar ca-

ioy poii oward hi ragy drig h x qarr.

D d Dd

E Dri ragi ch a Mrgr Arbirag ad road

E Dri had a ogh cod qarr. Th br o ac-

qiiio ad rgr dcrad, copai i ha

arg cah rr ad gray hahy baac h.

Th co o capia rai a coorab , ad i o

cor ch a pharacica i wi h b poib or

cooidaio o coi. i or a, poorr ri

appi i h ar wi adry ac h br o

da, ad aagr wi probaby rdc hir oa xpor.

ca o coid ow ir ra, orca da o

Arica oa ad corpora bod wi rai bow pr

c i . Dird ragi wi h oc o ry

w, copx iaio ha rqir high pciaid ow-

dg (ad ar o ry i-coig). Th rr ar

hr or ho wih paic, b iqidiy ad radig cyc

ay b difc or ay ior o aag.

E Dri ad Dird ar o ragi w rcod

a pr.

mc d d

Goba Macro ragi ha gray od i difc o d-

ir good arig hrogho , b hr ar ajor di-rc bw aagr ad hir pcic worig ara.

So ard good oy o h Apri rbod b aid o

a pro bor h rbc o May ad J.

Macro/Tradig ragi i h xd ico ara, which ha

o dird good arig hi yar ihr, ccdd i

rig arod hi rd ad howig dob-digi poii

arig hi r i ary Ag. Howr, h choico aagr i i a crcia acor, i w choo h righ

ragy. Today ar cia ha a i wai-ad-

ig. A h pha ha w ar i ar, aagr ar

prparig o ac. Th o proci, xpricd aagr

wi probaby a or corrc ipac a o ajor

poiica o ad b ro h io caio i

ri appi ad a pric ha h ay ad o.

CTA ha how dci iiar o Macro/Tradig. r a

wo-yar priod, ay aagr ha how zro arig,

b drig h wor rbc i Jy ad Ag, hi ra-

gy dird arig qia o or rr abiio or oh. Thr ha b arg o i crrci,

coodii, qii ad bod, ad o aagr ha

occaioay hd aggri poiio. W ha wid ig-

ica poroio ror aid a baacig a.

Hodig o bod a w a hor-r crii (ch a

Trary bi) ha b bi p. Eqiy poiio ha b

rdcd, ad i o ca hord. Coodii r-

ai i poroio b o ogr ha h a car oc o

rgy. Crrcy poiio i poroio ha o chagd o

ay gra x, b rai ocd o rgig ar ad

coodiy-prodcr crrci p hor USD poiio.

h who, hi r i or baacd poroio ad br

poia o aiga hrogh i-oai, crai ar.

Macro ad Tradig ar or r choic aog hdg d

ragi i h ar r.

Cclu:

Copard o 8-9, hdg d ar gray i a ch

or ab iaio, wih baiay br poroio ba-

ac ad prpard o ac a cooic owdow (or

a wor, a w rcio). Soio o h ay arg

orig db prob b did. Thi ay aray

ad o war goba GD growh, b or high-qaiy hdgd, h oco i iy o b bi a a.


Hdg d

STRATEGY INDEX PERFORMANCE %

Jul-Aug Q 2011 YTD

(Aug 26)

2010

gll d FX gll d Fud -. 2.51 -6.8 5.19

qu d FX qu d -. -.4 15.19 8.92

l vlu FX l vlu -. 0.09 2.51 7.65

D FX D -. 0.95 3.89 .98

mc FX mc . 3.56 0.93 1.73


29/37


North America is behind the surge in activity,

but subdued risk appetite is slowing the global

growth rate

The search or assets that pay returns is

beneting primary markets

Given continued market turbulence, recent

market trends are likely to persist

A i ohr acia ar, rc rbc ha adry

acd h ra a ar hogh i ha how

good riic i rai r.

h c l c

Accordig o Jo Lag Laa a qarry rpor o h

ra a ar, h cod qarr howd growh i h

goba o o dirc propry i raacio i

h corcia ar. Thi wa r boh yar-o-yar ad

qarr-o-qarr. Th gi o hi growh i aciiy wa

cary h aggig rcory w ar ig i Norh Arica,

wih US o ary dobig copard o h prcdig

qarr.

ary d o day i ajor bi da, howr, h

br o arg raacio harpy drig h cod

qarr. Thi b iwd a h ai rao why h rao growh i aciiy ha rcy bg o a. Aid ro

craiy abo h word cooy, praiig orig

xchag ar oaiiy i ow craig ricio i h ra

a ar. diry, o ajor coqc i ha

i i aig ogr o co arg bi da, ic ior

hia ha cood.

h ld qu l

Crr yid abiid i a ar drig h cod qar-

r. w bra dow yid io i wo ai copo, capi-

a growh ad ra ico, i i car ha h ra ar

i howig coid high aciiy i Aia ad Lai Arica,b igicay owr aciiy i Erop ad pciay i h

US. ra, r o b abiiig boh i h US

ad i par o Erop, wih ra i priary ar

cibig. aciay wa Eropa cori, howr,

hr ar coiig prob. Mawhi r p ri-

ig i Aia, d o rog dad i h rgio.

A or capia growh, oday i i b i Aia a w a i pri-

ary ar i Erop ad h US.

Demand or quality in troubled times

l

0

10

20

30

40

50

60

70

80

90

100

2007

Q1

2007

Q2

2007

Q3

2007

Q4

2008

Q1

2008

Q2

2008

Q3

2008

Q4

2009

Q1

2009

Q2

2009

Q3

2009

Q4

2010

Q1

2010

Q2

2010

Q3

2010

Q4

2011

Q1

2011

Q2

USDb

illion

Americas EMEA Asia Pacific

pLy ig i i COmmCiL

pOpi i O miC

The volume o direct investments transactions

related to commercial properties rose 82 per cent

in the United States and a ull 206 per cent in

Canada during the second quarter, but the globalgrowth rate is slowing.

Sorc: Jo Lag Laa


30/37

31

W ul

h wa o h rc goba oc ar id, h idi-

rc ra a ar (id ra a copai) ha a

j a harpy. Th EA/NAET goba pric idx ira

h rd i hi cor. A i h broadr oc ar, drig

a r ary wo hird o h poii growh w ha

i h pa yar wa wipd o. Gi oday aaio,

raiy arg dico o a a (NAV) ad i ay

ca araci dirc yid, w iw hi cor a big o

og-r ir ro a i adpoi. a d-

rioraig ar ooo wi probaby p ior away

i h praiig ar rbc ha bidd.

i u qul

ca o rc oaiiy i h xd ico ar, ii-

ioa ior ha ogh arai i h ra a

ar. Gi h db prob i par o h Wr word

ad h ri o cooic orhaig i o rgig ar-

rgio, hi highd ri ario ha had a poii

ipac o qaiy propri. priary ar i h Uid

Sa, h Uid Kigdo, Gray, Frac ad Japa, d-ad or rophy propri i driig p pric o h

w aw bor h 8 crah. or o b ig

riy ar ad pig hir oy io wha hy rgard

a a harbor. Thi ha dri pric o high ha i o

pac, yid hardy xcd iaio.

Cu d wll

Worri abo word cooic dop wi probaby

pri i h ar r, ad ar wi rai hay.

Haig aid hi, w ca xpc h crr rd o rai

i pac a a i a hor-r prpci. or arch

or a wih good yid hod coi o b rophy

propri. riary ar wi b or araci ha c-

odary o. crad ri ario aog ior i iy

o coi dayig ajor raacio, b h ac ha

h da ar aig ogr b ar o big cacd idi-

ca ha craiy wi o cary irrp h poii

rd w ar xpricig i h ra a ar.

SEB report: In today´s market, investing is a risky balancing act

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Transcript of SEB report: In today´s market, investing is a risky balancing act