investment outlook: navigating through risky waters

8/6/2019 Investment Outlook: Navigating through risky waters

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InvestentOtlook Jne piv bkig - ivm gy

huh w


2/40

3Investment OutlOOk - June

Contents

Sragy

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

Sary ...............................................................................................................................Poroio ragy .................................................................................................................

Th: diyig ri ................................ ................................. ................................ . 11

Th: Naigaig hrogh riy war .......................................................... ............ 1

Th: Too or oc ar choic ............................... ................................. ....... 19

Macro ary ............................. ................................ ................................ ................... 2

CL

Eqii................. ................................ ................................ ................................ .............. 25

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

Hdg d ............................. ................................ ................................ ......................... 0

Ra a ................................ ................................ ................................ ......................... 2

Pria qiy ................................ ................................ ................................ ....................

Coodii ........................... ................................ ................................. .........................

Crrci ................................ ................................ ................................ ..........................


3/40

4 Investment OutlOOk - June

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riab, SEB 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 SEB adior.

oraio abo axaio: A a cor o or raioa Pria Baig ofc i Lxborg, Sigapor ad Swizrad yo ar obigd o p i-

ord o h ax r appicab i h cori o yor ciizhip, ridc or doici wih rpc o ba acco ad acia raacio. SEB 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

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L gu Goba Had o Macro Sragy

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cd LudquPoroio Maagr

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vc d OlPoroio Maagr ad Had o S Lxborg

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Ccl khGoba Had o Coicaio Ta

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Lz bwCoicaor ad Edior

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Thi rpor wa pbihd o May 3, .

co ar bad o ioraio ad aayi aaiab bor May 3, .

Sragy


4/40


A period o rapid stock market gains and eco-

nomic upturn is now being ollowed by a calmertrend in both cases. This is not so dramatic, but

investors should lower their return expectations

a bit. Those who properly assess and manage the

prevailing market risks can earn a lot o returns.

A aag i away a cobiaio o og-r

hiig ad hor-r acica dibraio. Th ar

d coio iga. i h a ar o driig

wh h iga ar a orca o r rd, ad wh

hy ar a racio o a pcic ha oy porariy

chag ar i.

A h r approach, w ha a raiy opiiic

iw o capia ar i gra. Th goba cooy i i

a priod characrid by growh i o ajor cori, i

ay ca oid growh. May cori ar prig p-

pori ad accoodai oary poici. Th iaio

ooo i daay aorab i ay pac arod

h word. Thi ay h grodwor or a rahr poii iw

o h capaciy o h oc ar ad ohr cycicay d-

pd ar o gra highr a.

Th cooy ow appar o ha pad a poi i h co-

oic cyc ha i araci ro a i prpci.Th pward jory o adig idicaor ha probaby pad

ad ay ha pad, which ca b irprd a h ir-

rpio o a rd. Th idicaor ar ow ig o, b

hi i occrrig a a high igaig ha copai

or a brigh r or h cooy ad hir ow opra-

io.

Soc ar ri a i h iiia pr pha, wh

idicaor ar ao oig rapidy pward. Ar paig, hr

i a priod wh hy boh raiio o a car jory.

ca b dcribd a oig ro a rog b ar o a

or odra growh ar.

Thi i acay o ch a draaic proc, y i rpr

a rhr progrio i h cooic cyc. i ora o coid growh i oc ar a, hriig yid

prad bw corpora ad gor bod ad good

growh i ario ohr capia ar g. So i do

o rpr ay igica hi i dircio, b ior

hod owr hir rr xpcaio a bi.

addiio o or coary riw o opporii i ario

a ca, hi i o Investment Outlookao pay xra

aio o a w pcic qio: Wha ar h ri ha

ac capia ar pricig oday? Wha characri h

crr pha o h cooic cyc ro h prpci o

rr? How do w bid p a cory aocaio od or

oc ar?

Wih o jicaio, w ca draw h cocio ha

o ar ar o paricary xpi. rao why

ar ar o orpricd ay b h xic o a br

o ri cario ha adry ic h dir o i

capia. rc w, orig bod yid ha agai

a baiay, a ar racio ha i a ig o caio

ad prhap a ac o aih i cooic growh aog i-

or. Thi i why w coidr i ipora o dic h xi-

ig cooic ad ar ri. Tho who a ad aag

h ri propry ca ar a o o rr.

W ha rhr rd h cory od w achd i

h a i o Investment Outlook(Fbrary ). Th

jicaio or craig hi yp o od i a yaia-

io o or o ira driig orc ad ri i or a

aag.

Mar aayi i o dcribd a a ar or. B i raiy,

i i oy a ar o rcrd wor ad a hb aid

oward a coay chagig ad occaioay riy acia

word, which coioy gra bi opporii.

Hans Peterson

CIO Private Banking

and Global Head o Investment Strategy

iduc

A hble attite in a oerate growth arket


5/40


Sary

exctd, 1-2 yas(annual avags)

rasoningtun. isk

equitis 8% 16%

Positive. Risk appetite is increasing in the global stock market and the long-term trend still points

upward. There is a risk o short-term downward revisions due to soter economic signals, but various risk

actors are already priced into the market.

Fixd incom 5%* 6%

Positive towards High Yield and EM Debt; negative towards government bonds. Various OECD countries willbe fnancing large budget defcits, and government bond yields will rise. In EM countries, expect higher key inter-est rates and gradually less resolute tightening measures. The global economic upturn will continue to avour

the High Yield segment.

Hdg funds 6% 5%

Positive. Normalisation o fnancial markets will open the way or a larger number o mergers and acquisi-

tions, benefting several strategies. The improved investment climate will create potential or good returns,

without managers having to take unnecessary risks.

ral stat 4% 4%

neutral/Positive. Rental levels are rising at an accelerating pace, and the number o unleased proper-

ties is decreasing. Better borrowing opportunities will beneft the market. Some concerns about bubble

tendencies in China, while the American housing market remains weak.

pivatquity 10% 20%

Positive. Todays valuation levels are still attract ive, but companies are no longer cheap. There is some

fnancial instability, but strong economic and earnings growth is making this asset class appealing.

Commoditis 6.5% 18%

Positive/neutral. Somewhat greater worries about the world economic situation as well as recent USD

appreciation have contributed to a downward correction ater the commodities rally o the past year. More

normal weather conditions may continue to push down agricultural prices. It should be possible or oilprices to all when calm is restored in the Middle East and North Arica (MENA).

Cuncis 3.5% 4%neutral/ negative**. Taking advantage o interest rate spreads (the carry trade) and global imbalances

are actors that are driving this asset class. The revaluation o the Chinese yuan is likely to continue.

* 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

(my , O piL , )

Cg i OU XpCD U

Equities

Fixed income *

Hedge funds

Real estate

Private equity

Currencies

Commodities

0%

2%

4%

6%

8%

10%

12%

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

Expected volatility

Expected

return

Hiorica a ar bad o h oowig idic: Eqii = MSC AC

Word. Fixd ico = P Morga Goba GB H dg. Hdg d = HFRXGoba Hdg Fd. Ra a = SEB PB Ra Ea. Pria qiy =LPX. Coodii = D UBS Coodii TR. Crrci = B arcay-

Hdg Crrcy Tradr.

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

2008-11

2009-02

2009-05

2009-08

2009-12

2010-02

2010-05

2010-09

2010-12

2011-02

2011-05

Equities Fixed income* Hedge funds Real estate

Private equity Currencies Commodities

Fixed income

Equities

Private equity

Commodities

Real estate

Hedge funds

Currencies

-4%

-2%

0%

2%

4%

6%

8%

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

Historical volatility

Historicalreturn

iOiCL COLiO

(my , O piL , )

Equities

Fixedin

come

Hedgefunds

Reales

tate

Private

equity

Commo

dities

Currencies

Eqities 1.0

Fie incoe -0. 1.00

Hege ns 0.52 -0.2 1.00

Real estate -0.1 0.12 -0.0 1.00

Privateeqit

0.5 -0.5 0.1 -0.1 1.00

Cooities 0.2 -0.1 0.5 -0.11 0. 1.00

Crrencies -0.1 0.1 0.12 -0.12 -0.0 0.05 1.00


6/40


Sary

Wig i mOD pOCiO

Wig i mOD gOW

2.0%

4.5%

0.0%

0.0%

2.0%

13.5%

78.0%

0%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Cash

Currencies

Commodities

Private equity

Real estate

Hedge funds

Fixed income

Equities

Previous Current

3%

4%

5%

5%

2.5%

24.5%

27%

29%

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)

1%

0%

5%

9.5%

0%

19.5%

25%

40%

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

2002 2003 2004 2005 2006 2007 2008 2009 2010

Fixed income Hedge Real estate

Private equity Commodities Currencies

m: iDiFyig ik

Russia, consumer pricesBrazil, consumer pricesChina, consumer pricesIndia, wholesale prices

Source: Reuters EcoWin

2005 2006 2007 2008 2009 2010 2011

-2.5

0.0

2.5

5.0

7.5

10.0

12.5

15.0

17.5

Percen

t,year-on-year

-2.5

0.0

2.5

5.0

7.5

10.0

12.5

15.0

17.5

m: OOL FO OCk mk COiC

US, S&P500, USDSource: Reuters EcoWin

2003 2004 2005 2006 2007

S&P5

00

index

800

900

1000

1100

1200

1300

1400

1500

1600

S&P5

00

index

800

900

1000

1100

1200

1300

1400

1500

1600

Phase 1 Phase 2 Phase 3

Ination in the BRIC countries (Brazil, Russia, India and China) has ac-

celerated signicantly since the global recovery began in the autumn

o 2009. Rapid growth, shortages o spare production resources

and the commodity price rally are the main reasons, but the upturn

has levelled o recently, due especially to tighter economic policies.Together with the prospect o lower ood prices, this should mean

gradually slower ination ahead.

A bull market can generally be divided into three phases. Our as-

sessment is that at present, the market is in phase 2, where investors

increasingly distinguish between asset classes and stock exchanges

based on their respective potential.

id : Th cooic ad oc ar pr ay go o or aohr -3 yar; hr ar ri b hy ar

aagab

huh w:Th ar i oig ro a rog growh pha o a car xpaio pha

l c chc: Facor w ar ocig o i hi pha ar growh, iaio/oary poicy, aaio ad

crrci


7/40


pl

mOD pOCiO

Whi h yid cr or Arica gor crii

raid argy chagd drig h Fbrary-Apri priod,

highr Eropa/Gra hor-r ir ra crad aowha ar yid cr. Th o i Gra ir-

ra i xpaid, aog ohr hig, by h Eropa

Cra Ba y ra hi i Apri. aio accrad

owha i a br o cori d o riig cood-

iy pric, ad iaio worri ar owy crpig io h

ar.

h xd ico ar, w or ri rahr ha rr

i gor bod, ad w ar iad dig poia or

rr i corpora bod. Sic Fbrary, w ha graday

rdcd h Modr Procio poroio hodig o hor-

r xd ico d ad hid o corpora bod. Toprr h capia-procig i pro o h xd

ico b-poroio, w ar caioy poiiod i boh

Grad ad High Yid, aracd by highr copo

ad poib pric gai, b wiho hrby icraig ir-

ra ri. W ha ao icrad h har o abo/

oa rr d, which ow acco or abo ha o h

b-poroio. Each idiida d i hi g ipi a

owha highr ri, b h cobiaio o aagr di-

r i ragi r i a accpab ri ,

which i o a par wih h ri pro o h ora poroio.

Looig ahad, w pa o rhr rdc hodig o hor-

r ir-barig bod i aor o ior crd r-

agd oa oa id o copai wih ow crdiworhi-

b wih br dryig coara ad ariab ir

ra. Thi g wa hard hi drig h acia crii, b

a h dryig copai how rogr baac h,

h ri o barpci ha dcrad. addiio, h

oa ha highr coara ha radiioa bod, ad hri i qi iab or Modr Procio. Th ariab

ir ra copo ao a ow ir ra ri.

Th poroio aocaio o hdg d icrad, ig

a ow-ri, ar-ra aagr h hdg d b-

poroio ow acco or abo 4 pr c o Modr

Procio. Th poroio crrcy aagr ccdd i

rig arod h rd; hi b-poroio ro abo pr

c ro Fbrary o Apri.

A a ca i Modr Procio ha ad poii

coribio o ar i , ad h poroio i w qippdor a iro o poiay riig ir ra.

Stea portolios in a tltos arketOur portolios have remained steady during a turbulent spring. Due to minor adjustments in our

long-term market view, we have made some shits within certain asset classes, but without a need

or major re-allocations between them. Modern Growth and Modern Aggressive remain positioned

towards global recovery, while Modern Protection is gaining a somewhat higher expected return.

2.0%

78.0%

2.0% 4.5%

13.5%

Cash

Currencies

Real estate

Hedge funds

Fixed income


8/40


9/40


Poroio ragy

mOD ggiv

ordr o achi h b poib ri-adjd poia r-

r, wiho acricig or broad diricaio phioophy,

i Modr Aggri w ar crry iig i a

ca: qii, coodii, hdg d, pria qiy

ad xd ico. Thi ragy howd i rgh, wih h

poroio gaiig or ha pr c drig Fbrary-Apri,

whi word oc ar o or ha pr c i ro

r.

h qii a ca, rgig ar rgaid o

grod agai h ECD cori bw Fbrary ad

Apri, ad h MSC EM N i ro o a argia . pr

c, whi h MSC Word N i ro o .3 pr c. For

h qii b-poroio i Modr Aggri, hi a

a argia dowr o .3 pr c, boh bca ary 4

pr c o h qii b-poroio i id i rgig

ar ad bca boh h EM ad goba qiy b-

poroio prord br ha hir rpci bcharidic.

Mawhi h coodii b-poroio ha ri or

ha pr c. A r-war US doar cad coodiy

pric o ri gray, ad craiy abo goba oary

y bood h dad or god. Ucraiy abo h

r o car powr ad abo goba oi ppi i co-

jcio wih r i Libya pad h way o riig oi pric,

aog ohr hig. Th pria qiy b-poroio ro by

pr c. Th oa aocaio o pria qiy oday i abo

. pr c o Modr Aggri, o prcag poi

owr ha i Fbrary, which i acay bca w cho o

i capia iow aiy i High Yid d drig hi

rb priod. Th ooo or pria qiy rai good,

howr, ad a pr w o rao o chag hi a-

ocaio.

Th xd ico b-poroio i i ocd o High Yid

ad Ergig Mar Db. Th High Yid g i coi-

ig o b ro rogr baac h ad a icra-

igy poii dryig cooic iaio, which owr

h ri o barpci. Modr Aggri w ar ao

coidrig a icra i or aocaio o Ergig Mar

Db a h argi, w or owha highr poia

rr, b abo a hi hod corib o br ri di-

ricaio ro a poroio adpoi.

Th objci o Modr Aggri i o gra a rr

ha i highr ha h oc ar or cooic cyc,

ad hi hod ao b rcd i h hdg d b-por-

oio. Thi pa wir ad prig, h hdg d b-poroio

ha graday hid oward d ad aagr wih highr

poia rr. Drig Apri w bga h proc o pha-

ig dow Goba Micro d, which w bi ha a pro

ha wi o achi h argd rr o h ora poro-

io. W ao pa o r-a or Crdi Log/Shor-oridhodig; hi ragy a ch cary corib o ri di-

ricaio i h hdg d b-poroio, b i igh b

poib o boo poia rr. Hdg d dcrad

a a proporio o h Modr Aggri poroio drig h

priod, b hi i priariy bca w prr o i i ch

a a High Yid bod drig h priod whi or arch

or w hdg d aagr i dr way.

Dpi a highr ri pro, Modr Aggri ha pr-

ord w drig a rb . W wi argy rai

h aocaio o h poroio bw a ca ad wi

coi o h o araci ri-adjd rr i

ach a ca.

19.5%

9.5%

25%

40%

1%5%

Cash

Commodities

Private equity

Hedge funds

Fixed income

Equities


10/40


11/40

12

Looig a i rhr ahad, i cao b rd o ha

rad ad Porga ay ao ac db rgoiaio. By

h hr wi hopy b argr dig rorc a par o

h wy crad Eropa Sabiiy Mchai (ESM) hawi b fci o proid oa o Spai a w, i dd.

Fcl u wll h Dm wh

coqc o ca dci ad db wi b i-

yar, o-cycicay-rad ca ariy, boh i cori

who gor ha dd p i a ac acia ia-

io Porga, rad, Grc ad Spai (h PGS cori)

a w a h Uid Sa ad h Uid Kigdo.

i, hi i ohig ha wi hapr cooic growh i

h DM phr or ay yar o co.

Th prr o h US o ar riig i hg bdg d-ci icrad rhr wh Sadard & Poor rcy ow-

rd i ooo o US orig db o gai. Prid

Barac baa propoa o igh h dra bdg by

USD 4 riio drig h priod -3 h bca h

oc o poiica dicio i Wahigo. a biparia

co ca b rachd which i or baic cario h

US gor ca achi a ighig qia o a

iad 3. pr c o GDP drig ca . For h DM

cori a a who, h coraci c aribab o

ca ariy x yar wod b abo . pr c o GDP

(. pr c hi yar).

J cl u

apa orig crdi raig ad crdi ooo ha b

dowgradd hi yar, b o bdg-ighig i i h card

o h corary, d o h coqc o h March

arhqa ad h bq ai ad car powr

pa air. h hor r, h cory ha rd a

harp cooic id. Lar hi yar ad drig , i wi

b oowd by accraig growh rad o roraio ad

rcorcio wor ar h ara diar. Th co wi b

baiay argr ha ar h Kob arhqa o .Thi wi a a dp ho i gor ac, ad or-

ig db ay icra o 3-4 pr c o GDP by h d

o x yar.

Th apa ara diar iiiay pod a obio hra

o acia ar, wih aig ri appi ad ri a

pric. Looig ahad, howr, apa wi iad or op-

porii o h goba cooy wh i rcorcio

icra word dad.

Cclu: Gor acia prob wi o ha h

pr

Grad ha or ay yar, gor acia prob

wi b a occaioa orc o ar worri. Bdg igh-

ig i h wa o dci wi b a drag o cooic growh

i h DM cori or ay yar o co. Thr wi ao b

ajor ca chag drig h x rcio, wh roo

or cor-cycica poici wi appar oxi. Howr,

a gor acia crii o ch caibr ha i wod c

hor h cooic pr i iy, hogh h ri b

oiord ry cary.

Cl d lc hA h a i a ay DM cori ar ow ighig

hir ca poici wih Swd ad Norway aog h

xcpio i o pac, cra ba wi coi or

iiia hir xi poici ro a abora arig poiio,

oowig h rgcy aag ar rqird by

h acia ad cooic crii. Th Ba o apa wi hod

o or a og i, howr.

Ky ir ra ha b raid i par o Erop a w

a i ch coodiy-prodcig cori a Caada ad

Araia, ad h ECB ha caioy bg i ra hiig

cyc. Th Ba o Egad i i o a hrry b i iy ooow i hi a. Th Fdra Rr (Fd) wi co-

p i qaiai aig progra (QE) prchaig

USD 6 biio worh o US gor crii b wi

probaby aow i baac h (h oary ba) o hri

ighy hi a ad h carry o i r y ra hi

ary i .

Th pha-o o QE hod o ad o ay igica

c o ar ir ra, ic h USD 6 biio

icra i h Fd baac h ic a a ha

o b accopaid by harpy riig oy ppy ad

dig. Th raio bw h oy ppy ad h o-

ary ba h crdi ipir ha iad a py,

ipyig ha h oy ha ayd wihi h wa o h

baig y. ohr word, QE ha o iad h

Th: diyig ri

Investment OutlOOk - June

Oig DFiCi D O b iD i


1905 1920 1935 1950 1965 1980 1995

USDt

rillion

-1.50

-1.25

-1.00

-0.75

-0.50

-0.25

0.00

0.25

USDt

rillion

-1.50

-1.25

-1.00

-0.75

-0.50

-0.25

0.00

0.25

Mainly due to the nancial and economic crisis, the US ederal

budget decit has exploded in recent years. Austerity measures

are imminent, however, shrinking the decit rom about USD 1.4

trillion in scal 2011 to USD 1.1 trillion in scal 2012. The chart

shows budget outcomes until scal 2010.


12/40

13

US cooy ia h doic dig cha, b iad

bca h doar ha a. QE ha rghd h bi

aog ar payr ha h Fd oary poicy wi

rai ra-oo ar ogr ha ha o ohr ajor craba, xcp or h Ba o apa.

Dm x lc lc c

Gray paig, cra ba ow pror a car-

baacig ac. h o had, hy rr h

cooic pr, whi barig i id ha ca poici

ar ighig igicay i ay pac. h ohr had,

hy a io acco ha oa iaio h arg

ariab or ay cra ba ha icrad igicay

ic a a, d o harp icra i coodiy pric.

Th pric ooo i o aarig, howr. Aig hah coodiy pric icra cia ad ha ar hi

yar, crai pric aog h rgy ad ood a

owha, oa cor pric iaio o boh id o h

Aaic i wi b w bow h . Cor iaio

(xcdig ood ad rgy) wi cib ry ody x yar.

Cclu: Thr wi b o rao or DM cra ba o

harpy igh hir oary poici

rc oh, cra ba i h DM cori ha

acd or difc dciio-aig prob a iaio ha

icrad harpy, aiy d o or xpi coodii.

B h pric ooo i o aarig. Th proc o wid-

ig ry accoodai ir ra poici ca h occr

gy. i oary xi poici coqy po o

hra o h cooic pr.

D cclcl h cd

Whi h DM phr aw dp dowr i h a rc-

io, cooic rra or EM cori wr baiay

haowr. A a coqc o hi, io ha ari i

h goba crrcy y. Th ha icdd wha h

EM cori rgard a diraby rog pward prr

o hir crrci a w a orhaig ri, ao rado abo-rd growh ad coodiy pric icra. So

cori ha rpodd by iiig h iow o poroio

i ro DM cori; o ha ighd hir

cooic poici i ordr o ow cooic growh.

Th iaio ha cood owha ic Chia accrad

i raaio o h ya agai h US doar, b by a

idicaio crrcy-rad io wi coi i h or-

ab r. ay , hr i i iihood o a wid-

prad crrcy ad rad war, pciay ic h ooo

or h EM phr ow o b iproig i ipora

rpc.

h ll u

Eor by EM cori pciay i Aia o rdc or-

haig prob ar oo iy o ar barig ri. Growh

ha dcrad a a r o ir ra hi, ba dig

rricio ad ca ariy, ad pric prr i rdig

dowward. Aig a izab dci i ood pric drig

h cod ha o hi yar ( bow), codiio wi i-

pro rhr. h EM cori, ood acco or bw

ad pr c o h cor pric idx, copard

o a arag o pr c i h DM cori. Mawhi,

h EM phr i ii o oi pric o. Th

propc o chapr agricra prodc ar hi yar i h

pciay ipora o h EM cori. A a r o h

propc, h d or ighig cooic poici wi ad

i o o h EM cori.

Cclu: No cooic hard adig i h EM phr

A ry haow cooic p i h EM cori i 8-

ad abo-rd growh p rgig coodiy pric

ha rd i crrcy-rad io ad orhaig i

ay o h cori. Th orhaig prob ow

o ha dcrad, ad h propc o chapr ood wi b-

EM hohod i paricar.

m x d cu d l ri ha i o bad o h acia ad cooic crii

i h big icra i coodiy pric drig h pa yar oro. Thi ca b xpaid by icrad dad, a igica

o pcaio i riig pric, a waig o h US

doar ad i h ca o ood pric ppy-id dirp-

io d o h La Nia wahr phoo.

Th: diyig ri


Ovig igiD iFLiO

Russia, consumer pricesBrazil, consumer pricesChina, consumer pricesIndia, wholesale prices


2005 2006 2007 2008 2009 2010 2011

-2.5

0.0

2.5

5.0

7.5

10.0

12.5

15.0

17.5

Per

cent,year-on-year

-2.5

0.0

2.5

5.0

7.5

10.0

12.5

15.0

17.5

Ination in the BRIC countries has accelerated since the global

recovery began in late 2009. Rapid growth, shortages o spare

production resources and the commodity price rally are the main

reasons, but the upturn has levelled o, especially due to tighter

economic policies. Assuming lower ood prices, this should meangradually slower ination ahead.


13/40

14

Mor xpi ood wa ao h par ha igid ocia -

r ad ioc i h Midd Ea ad Norh Arica (MENA),

which i r rhr d h oi pric pr. Th ri i

ha oi pric ay cib o ch a o ca a harp dc-raio i cooic growh. So ar, or xpi coodi-

i ha had a crai cooig c o h word cooy,

b wiho jopardiig h pr.

h l c Dm cu

Th iaioary c o h pric pr o da ar iy

o b rahr ior i h DM phr. i ad ohr co-

odii acco or oy a a racio o oa copay

xp a orwhig ajoriy o h xp

coi o abor co (abo 7 pr c) ad i oday

acrocooic iro i i ao iy ha copai

wi ha difcy paig o highr xp o cor.Mawhi hohod/poy wi d i hard o ph

hrogh dad or highr wag ad aari a copa-

io or or xpi rgy.

Hohod rgy copio a a har o GDP ha ao

a baiay drig h pa or dcad, or xap

i h US ro 7 pr c i 7 o abo pr c oday.

h rqir a igicay argr pric icra ow o ha

h a ighig c o pria copio a bor.

Frhror, h corraio bw Arica GDP growh

ad rgy pric ha chagd ig. h 7 ad ary

8, h corraio wa rogy gai: 8 pr c a

h pa. ohr word, riig oi pric w had i had

wih aig GDP. Sic h i ha graday chagd ad ha

bco poii. h orh qarr o a yar, hi poii

corraio wa abo 7 pr c. Nowaday, riig GDP h

go had i had wih riig oi pric, a highr growh ad

dad ro hohod ad bi ad o a grar

d or rgy ad ohr coodii.

Fd cd c uu

La b o a a pa i h coodiy pric pr i

par o or orca or h cod ha o , ic ppy-

id dirpio ar iy o diiih by h. h ca o

oi, or xap, prodcio i Libya hod icra agai,

ad ha aghy wahr gir La Nia wi r ic agai, ac-

cordig o og-r oroogica orca: h wahr

wi b ar or aorab or prodcio o agricra co-

odii.

Cclu: Mor xpi coodii ha owd b

o irrpd h pwig

So ar, h icra i coodiy pric ha owd b o i-

rrpd h praiig cycica pwig i h DM cori,

ic hir iiiy o darr oi i paricar ha graday

diiihd ic h 7. Thr i ao poia or chapr

oi ad o a agricra prodc ar hi yar. A d-

ci i ood pric wi pciay b EM hohod.

m ul h d w w

Aog h acor bhid h b-pri orgag crii ha

xpodd i 7-8 wih draaic acia ad co-

oic coqc wa h Fdra Rr oo o-

ary poicy ar h T/co bbb br ary i h w

ii. Th way ha h coqc o a br bbb

ar aagd ca h pa h way or h x bbb.

Sic 8, DM oary poici ha b xcpioay

accoodai. No i hi prig ha o o h ajor

cra ba i h cori, h ECB, a h r p

oward a oraiaio o i oary poicy. So i hr ra-

o o ar ha w pcai bbb ar ow iaig?

Th: diyig ri


gDp Cg D OiL piC gO D i D

GDP, USBrent crude oil

1998 2000 2002 2004 2006 2008 2010

Percent,y/y

-75

-50

-25

0

25

50

75

100

125

150

Percent,q/q,annualised

-10.0

-7.5

-5.0

-2.5

0.0

2.5

5.0

7.5

10.0

12.5

In the 1970s, GDP in the US usually grew more slowly or ell when

oil prices rose, but in recent decades the correlation has becomepositive: Rising oil prices are associated with aster GDP growth

and alling oil prices oten coincide with weak US expansion.

LiL W giL Wi big piCig pOW

Soya beansMaize (corn)

WheatSugar

Index, Agricultural productsSource: Reuters EcoWin

2006 2007 2008 2009 2010 2011

Index

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

5500

6000

Index

0

100

200

300

400

500

600

700

800

900

1000

1100

The price increases or agricultural products last autumn and

winter were mainly due to the La Nia weather phenomenon,

which caused ooding, droughts and more. Today orecasts point

towards more normal weather and thus lower prices or variousagricultural products.



14/40

15

obio cadida ic a a ha b h co-

odii ar, b ary i May hr wa a oicab

dowward corrcio i ay coodiy pric. W ao b-

i ha h pr i coodiy pric ha ciad.

Dm d l ul cdd

dgig aog ohr hig ro aaio, h oc ar

i o gray characrid by ay bbb dci a h

o, b hr i rao or o cocr i h ca o

DM orig bod. Th yid o h bod ha rdd

dowward ic h ary 8, wih h accopayig i-

cra i h ar pric o h xd ico crii.

Today i i difc o or propc o owr yid/

highr ar pric a oary poici i h DM phr

graday orai. o ca, gigaic bdg dci

b acd. B a pr i a og way bwor ba cario o graday riig orig bod yid o a

bbb-brig proc draaic icra i ch yid.

h ra a ar, ay bbb ha arady br i

rc yar, o oy i h US b ao i ch cori a

Spai ad rad. Th ri ha h Chi ra a ar

ay crry b i a bbb ha b hoy dbad i rc

yar.

Tho who ar worrid poi, or xap, o xci ri-

dia corcio i Chia, h ac ha ro ho-

hod i d o a argr ho cao aord o d o pric

icra, ha ay pop ha rgardd ho a i- ad ha ir ra ar ow riig whi dig i

big ighd. Tho who ar o worrid iad pha-

i ha dciio ar a a wa o aoid a dci

i corcio ad ho pric, ha ridia corcio

i o xci a a, ic hr ar who cii wih diapi-

dad hoig oc, ad ha hoig dad wi icra i

h og r d o coid rbaiaio i Chia.

Th qio o whhr h Chi ra a ar i i

a bbb or o i h ry copx, ad a giy oid

awr wod rqir a i-dph aayi. So h a word i

ha h jry i i o.

Cclu: h u ul h, uh cdd

Th cooic poicy rpo o a pcai bbb ay

prpar h way or h x o. B dpi xcpioay ac-

coodai oary poici i h DM phr i h pa

w yar, o obio bbb dci ar crry i igh.

DM orig bod ad h Chi ra a ar ar

poib cadida.

Th: diyig ri



1905 1920 1935 1950 1965 1980 1995

0.0

2.5

5.0

7.5

10.0

12.5

15.0

17.5

Percent

0.0

2.5

5.0

7.5

10.0

12.5

15.0

17.5 D iF LikLy FO gOvm

bOD yiLD

Since the 1920s, government bond yield cycles in the

US (10-year Treasuries in the chart) have encompas-

sed periods o about 30 years. First there was a alling

trend until the late 1940s, then a rising trend until the

early 1980s, ollowed by a period o gradually alling

yields. I history repeats itsel, the trend during the

coming decades will be upward. Looking ahead at

least a ew years, there are also various arguments or

rising government bond yields, which would adversely

aect bond prices. But it is unlikely that this marketwill now see a bursting bubble.


15/40


h:

huh w

From strong growth to calmer expansion

Greater stability will eventually mean greater

risk appetite

Focus shiting to less cyclically dependent

sectors

Th cooy i o i way io a par o h cyc whr go-

ba adig idicaor, pciay i apa, ha pad.

rc oh hy ha how owha owr a ha

prioy. A h ora , hi a adjig or or-

ca or h word cooic growh ra ighy dowward.

Nrh, w o rao o abado or daay

poii iw o h cooy, which oday icd xpca-io ha aa goba growh wi b arod 4. pr c i

ad . Fdaay, hi proid good codiio

or ri-barig a ch a qii.

Aig ha h cooy i i i a growh pha, which i

h ca, h qio ad i acro-orid aay o

h ooo hod b: How og do h cooic pr

appar capab o coiig wiho dirpio? Wha

igh irrp h pr prary? Ar hr ig o

pcai bbb i acia a ar or i ra -

a? (S Th: diyig ri)

d xcll udc

Hiory gi xc gidac rgardig h gh o a

ora cycica pr, wha ay irrp ch a pr

prary, ad how rqy pcai ar bbb

ha occrrd.

Bw h a ad h d o 7, h Uid Sa

had igh priod characrid by cycica pr, wih a

arag gh o qarr. Thi iry ach h ar-

ag gh o qiy b ar drig h a i pa.

Cycica pr ha rh how a wid rag o

draio; h hor ra or oy hr qarr, h ogor 3 qarr. Th arag US rcio ic h id-

ha ad j or oh.

pc hc d cul ul c

Th pr i h a ad h 6 wr irrpdd o radiioa cycica rao, whi h pr drig

h 7 wr irrpd prary wh h cooy

wa bjcd o oi pric hoc. Th r pr o h 8

wa irrpd ar oy hr qarr wh h Fdra

Rr harpy ighd i oary poicy ia ir ra

hi ad oy ppy aag i ordr o coba ry

high iaio.

Th hr bq cycica pr ha occrrd i h

ad a dd i way ha icdd o

br pcai bbb.

Th crr cycica pr bga i h US ad ay ohr

idriaid cori (ECD = Dopd Mar, DM)

ary i h cod ha o ad ha h b dr way

or ary wo yar. h praiig cycica pwig i i

pac ad i o bjcd o ay id o hoc, i hod b

ab o coi or aohr wo o hr yar. Thi, i r,

wod qii ad ohr ri a. B ic w ar i a

pha wih ario poib orc o ri ha ay ic

hi aorab dcy, i i ipora o ry o aa h

ario ri w ha arod , ad how hy cod po-

iay ha a adr c o h poii rd.

W wigh i crai ri or xap, ha cooicgrowh ay b war ha xpcd, or ha o o h ri

acor dop i a way ha i iy oday, y igh hap-

p ad a a a o how o i capia i

ordr o rdc h ic o h ri.

r r obraio i ha w ar odraig or iw o

wha wi dri capia ar i h ar r. W ar o-

ig ro a priod o accraig growh o a car xpaio

pha. i, hi wi ad o dir ar bhaior.

Thi yp o car pha i a ara par o a cooic cy-

c ad i away accopaid by a crai owdow i idi-

caor, craig a o cocr aog ior. i h

ipora o pac hi arg i i cox ad rca ha

dryig growh i h ara a o h cooic cyc.

Capital investents in a caler cclical phase


16/40

17

Gi irrpio i h cycica pr ar iray a-

way dri by ario id o ighig ar which

a pr w ar crry ar ro, i a oa goba prpc-

i.

r ora a i ha iaio ri ar aagab

ad ha w ca rr o a priod dri by cary rrd

growh ad odray accoodai oary poici.

w d w u h l h cu ?

W ha idid o y rd ha w bi wi b o

gra iporac i h ar r:

Fundamentally,publicauthoritiesarestillmakingsignicant

or o rr ab growh, ic i wi b cary oicra poy i ordr o rpair gor ac

arod h word.

Therecoveryfromthenancialcrisisiscontinuingslowly

b ry, ba ar rcapiaiig ia pro ad gor

acia ri ar crry or or dr coro.

Commoditypriceshavecooleddownabitareectionof

a car cooic rd ad h US doar i howig o

dci oward apprciaig agai ohr ajor crr-

ci.

Marketsaremovingfromacyclicalfocustoamoremixed

iw o wha a o hod ow, a par ha ha b

car i oc ar drig h pa w oh.

Riskappetiteisstabilising,andvolatilityiscomingdown

o aiaby ow a idicaio ha capia ar

ha a icraigy hoogo iw o h r.

Governmentbondyieldsarenormalisingmoreandmore,

ad crdi prad ar arrowig rhr.

Wha qaii characri h i w ar ocigo? Th qaii ar ow cycica dpdc, ow oaiiy

ad icrad ri appi, high a addd, icrad a-

cia abiiy ad high growh a raoab aaio.

Lw cclcl ddc

Drig h bgiig o a cycica pr, hr ar riig

aaio i ho oc ar cor ha r xpric

icrad dad; hi cagory icd coodiy copa-

i. ar pha o h cyc, h oc o o ohr c-

or ha ar cycicay dpd. Pharacica copa-

i ar a xap o a cor wih ow cycica dpdc,

o caid a a-cycica. irig ida i o ooa which cor ca how good arig orca drig

ad . Ao ipora i owr dpdc o co-

odiy pric.

Lw ll d cd

h or ar pha o h cooic cyc, capia ar-

prorac i o or ior. W g owr oaiiy,

ad ri appi h o icra. W do o ha h

a wid ar caio.

Hdg d aag o hri drig pha o

raiy ab growh. addiio, hdg d aagr ar

o i chicia who ca a fci adaag o

a pric dirc. Thi wor b wh hr i a crai

dgr o prdicabiiy i ar.


Th: Naigaig hrogh riy war

ig FOC by CO

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

Energy

Materials

Utilities*

Financials

Healthcare

Industrials

Information

technology

Telecom

services

Consumer

discretionary

Consumer

staples T

otal

2011

2012Growth,

earnings/share

Dg FUD iv i bL viOm

World, HFR, Global Hedge Fund Index [increase %] US, VIX-indexSource: Reuters EcoWin

May

2008

Aug Nov

2009

F eb M ay A ug N ov

2010

F eb Ma y A u g N ov

2011

Feb May

Index

0

10

20

30

40

50

60

70

80

90

100

110

Percent

-25.0

-22.5

-20.0

-17.5

-15.0

-12.5

-10.0

-7.5

-5.0

-2.5

0.0

2.5

Forecasts indicate somewhat lower prot expectations in sectors with

low cyclical dependence such as health care, telecom services, con-

sumer staples and utilities. The consumer discretionary sector may be

regarded as late-cyclical in nature and will show uniorm, high growth

during 2011 and 2012.

There is a strong negative correlation between hedge und perorm-

ance and stock market volatility. Hedge und managers generally ben-

et rom phases o relatively stable stock market perormance.

Sorc: Fac* criciy, ga ad war


17/40


Th grada icra i ri appi ao dri ior o

accp i wih owr iqidiy, ad hy oo or a-

ha cop radiioa ar. Thi a ha

pria qiy ad or aior-ad i co iooc.

W ca ao add crrcy ragi o hi cagory. Today w

ha had ajor hi i orig xchag ar rd ad

arg ir ra prad. Th ragi ar ao raiy

idpd o cooic cyc ad ca proid rr

i oc ar a. Thy ar araci ro a poroio

adpoi.

h lu ddd

Bca h ar wi, o a gra x, b ooig or a-

ha ar o ricy dpd o h cooic cyc,a addd wi b icraigy araci. Hr, oo, pria

qiy wi arac aio ic i bi od a i

poib o opii copai i a powr way, opraio-

ay b ao aciay. oc ar, w ha a br o

cor wih high a addd, icdig radiioa idri.

icd cl lA h acia y bco rogr, h acig o

ario bi wi b a acor ha dri a. Today

ba ar howig raiy wa prorac, b hy ay

b i h haig proc coi i h r. Thi

wi proid a hpig had o copio ad i.

Scor ha ar dpd o acig wi ao b.

h wh l lu

A pr, h growh ra i dir or dir a. i

highr i par o h aacrig cor ad i rgig

ar cori. a or ab pha, w wi a carr

diriaio bw a ca, ad h iporac o

chooig propry wi icra. Th chag i i dig

a ha ha high, ior rr b ar o orpricd.

Thi appi o cor i h oc ar a w a cori.

Th: Naigaig hrogh riy war

gOW v. vLUiO

In a more stable phase o the economic cycle, the

valuation gap both between countries and between

sectors will shrink. It will thus pay better to hold assets

with high growth that, relatively speaking, are not

overpriced.

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

5.0 7.0 9.0 11.0 13.0 15.0 17.0

P/E

World Emerging markets US Europe Japan Brazil India China

Gro

wth,earnings/share

Sorc: Fac


18/40

19

h:

l

c chc

Large discrepancy in returns important to

choose properly

China and the US score the best in our

modiied model

Falling ood prices will beneit EM stock

markets

Th ar i a oig arg. Facor ha wr o ipor-

ac o qarr ago ay b copy o o da oday,

whi w driig orc coioy o oag. Mar

ar o dri by oy o or a w acor a a i. A a

ior, i i ia o ry o idiy wha h ar, how ch

ipac hy wi ha ad how og hy wi a.

Whr w ar i h ar cyc i o cra iporac i

big ab o prdic how goba ri wiig wi chag.

Sic har pric, coodiy pric, rr o oa c.

bood o i h prig o , w ha xpricd a

b ar characrid by high ri appi ad riig a

pric.

Roghy paig, a b ar ca b diidd io hr

dir pha. h r pha, a pric rg o a

broad ro. Thi occr bca h ar ca wri o hdooday cario o icdd i pric ar a bbb

br (h T/doco crah, h acia crii c.). h

cod pha, ri wiig i cary or ariab, ad h

dicrpacy i rr bw dir a ca ad

rgio icra. By h h rcory ha rd a or

ar pha ad copay pro ha abiid. h

hird ad a pha, ior bgi o dirgard ri, ar

haig xpricd yar o pward-rdig a pric ad

rog cooic growh. Thi pha i o characrid by

phoric ar payr ad xpoiay riig a pric.

r a i ha a pr, h ar i i pha wo,

b ha i wi a o i bor ar payr o hirri prpci ad bi ha r grow o ha (pha

hr).

a i cia whr ri wiig ca ad

h dirc i rr bw a ay b arg, i i

pciay ipora o idiy oorrow wir ad o-

r. For hi prpo, i h a i o Investment Outlook

(dad Fbrary ) w achd a qaiai oc ar-

od or cory aocaio. W ar ow bidig rhr

o hi or.

New actors an new avorites


bULL mk DUig p OF

A bull market can generally be divided into three

phases. Our assessment is that at present, the market

is in phase 2, where investors increasingly distinguish

between asset classes and stock exchanges, based on

their respective potential.US, S&P500, USDSource: Reuters EcoWin

2003 2004 2005 2006 2007

S&P5

00

index

800

900

1000

1100

1200

1300

1400

1500

1600

S&P5

00

index

800

900

1000

1100

1200

1300

1400

1500

1600

Phase 1Phase 2

Phase 3


19/40

20

Uig a qaiai od ha a br o adaag.

i a good oo or rcrig h ar ad idiyig

h driig orc o h r. addiio, i i ay o o-

ow h aayica proc, boh or ho who wor wih hod ad or ho who iw h r. diadaag,

howr, i ha h od aig gr o bjci a-

abo wha acor wi dri dop ad

how h hod b cord or dir cori. A od

i r br ha h br ha ar p io i, ad i

wi probaby o capr a orc ad cario. Th od

i coqy o a abo rh, b i idd o d-

crib how w iw h ar ad wha w bi wi dri

i i h coig oh.

Th od i bad o or cio o acor ha w bi

wi ac h ar i h r ro a cory adpoi.W ha chagd o acor copard o h prio

od. Th acor w ar ow ocig o ar growh, ia-

io/oary poicy, aaio ad crrcy. W cor ach

acor bad o i poii or gai coribio o h

oc ar i ach rpci cory. Th ca r ro

-3 o +3. Th od ao ab o wigh h ario

acor o h bai o how arg a ipac w bi hy

wi ha, gi h ar cia w or. Thi i, how-

r, w ha cho o o ch wighig, ic hr

ar wr acor ha bor ad w d i difc o ra

hir ipac.

ipora dirc copard o h prio rio o

h od i ha o a grar x, w ar ow ocig o

or iw copard o h ar co. adaag

o hi w approach i ha acor o y pricd i by h

ar ar ay wha wi dri h ar. diad-

aag i ha i i difc o ow xacy wha h ar

co i.

GDP growh ha hioricay had a airy ow co-ariaio wih

har pric o. xpaaio or hi wa co-

cio i ha o o h copo ha a p GDP

growh ar pbic ioraio bor h aca GDP gri pbihd. Th ar h ha a rahr car prcpio

o wha ha happd by h i h gr i pbihd,

or ha a oh ar h d o ach qarr. Drig hi

priod, qi a o o w acrocooic aiic ha ao

had i o appar, rcig a or crr radig o h

cooic p. Thi i why hr i rary ay xci or

ajor rpri wh GDP growh i aocd.

Ch gDp c, howr, ha hioricay had

a ry arg ipac o har pric. A Goda Sach dy,

or xap, how ha a prcag poi chag i x-

pcd GDP growh ooig ahad o yar ha rd i a pr c chag i har pric (a big qa). Th

cori i h od h rci poi pciay wh or

growh xpcaio dirg ro co orca.

if/ lc i a acor ha ca b approachd

ro ario ag. or prio od, w wighd i oy

oary poicy, wih a xpaioary oary poicy big

prrab or ior. A ha i h word wa diidd i

wo, wih poicy ighig i h EM phr ad ra-oo

oary poicy i h ECD. Th prad i ir ra

rai wid, b ir ra hi i h ECD cori

ar ow bgiig o b pricd io h ar, whi o

EM cori wi ha dd hir ra hiig cyc hi yar.

aio i coy cocd o oary poicy, ad hr

i a car dirc i iaio prr bw dir

grop o cori. hi pha o h cooic cyc, w

prdic ha chag i iaio xpcaio ar iy o ha

a ajor ipac o a pric.


COuNTRy/

GROuP

Growth Infation/

onetar polic

Valations Crrenc Total

m

Dm

Ch

Ud

g

u

u -

dc cu

wd -

bzl

pig cu -

J

OU m mODL FO COUi/gOUp OF COUi

Th: Too or oc ar choic


20/40

21

c lu ar gray i i wih hir -

yar arag. Mawhi har pric ar oy abo - pr

c bow hir pa bor h obra o h acia cri-

i. Copard o har pric, aaio ar h igicayowr i oday b ar ha bor h acia crii.

r o aaio, o grop o cori ar radig

a abo h hiorica arag, b o ar ay b r-

gardd a owha br bargai. Th ar apa (d o

po-diar c), h Nordic cori, Ria ad Chia.

Cuc ar a acor wih ra diio

ro a ior adpoi. Fir, a war crrcy ay b

poii or h oc ar, ic i rgh h co-

pii o a cory xpor cor. h pa yar, or

xap, hr ha b a ry rog aociaio bw

a war US doar ad riig pric o Arica oc x-chag. Scod, crrcy o ay ha a dirc

ipac o rr or a ior who by orig qii.

For a Swdih ior, or iac, i ha b difc o

gra a poii rr o a goba qiy poroio d o

h rog prorac o h Swdih roa drig h pa

yar (i.. aig xchag ra or ohr crrci). Sic i

ay ca oday id copai ar o gobaid ha i

i difc o ow whr hir prodcio co ad a ar

ocad, w ar aigig h arg wigh o h dirc c

o crrcy o o rr i h od.

d m

Diidig p oc ar io rgig ar (EM) ad d-

opd ar (DM) cori i a ry crd approach, ic

hr ar wid ariaio i codiio wihi ach o h

grop o cori. B ahogh w prr o iw oc ar-

ro a cory prpci, a pr hr ar crai

acor ha jiy coparig EM o DM cori.

EM cori rci or poi or a acor i h od

ha DM cori, ad h rao i a oow: Soc ar

i h EM phr ha b hd bac d o h ighig

o y ir ra, which ha b dd i ordr o a

high iaio prr, aiy dri by harpy riig ood

pric (a arg har o dipoab ico aog EM co-r). Th ir ra hiig cyc ha o y dd, b i

c i arady pricd io h oc ar. r a

i ha ar hi yar, ood pric wi a ar ad rhr

ha crr co xpcaio. Sch a cario wod

icra prchaig powr ad rdc h d or oary

poicy ighig i h EM phr.

Ahogh h EM phr i o iy o rpa oday high

GDP growh xpcaio, w bi ha hr wi b a

rwd oc o h growh gap bw h DM ad EM

cori. or ar iy o b aracd by h high

growh ha EM cori wi or, rig i capia iowad riig har pric. Aohr c i ha EM crrci

wi b i dad, ad a arg ir ra gap bw EM

ad DM cori wi rhr hac hi aracio. Mo EM

cori hod ha a poii aid oward ig hir

crrci apprcia, ic hi wi rdc iaio prr.

Fiay, aaio o o EM oc xchag oo araci.

Tradiioay, EM har ar radd wih a dico o h word

idx. Gi h crry praiig wo-pd cooic

iaio i h word wih h EM phr prorig br

ha h DM phr hi dico i o qay jid.

Wihi h EM phr, h ooo i arid. W or h

b poia or Aia, oowd by Ear Erop ad ay

Lai Arica. Copard o Aia, Lai Arica do o or

h a growh gr, iaio i aagab ad cr-

rci ar o xpcd o apprcia o h a x.

addiio, a raiy powr corrcio i coodiy pric

i dr way, pig cori ha ar coodiy cor

(Aia) i a br poiio ha coodiy prodcr (Lai

Arica).


Og gOW COU

The US and Germany score well in our model because

we believe that their growth will be well above the

2012 consensus estimate. The EM sphere and China

also earn high scores or the growth actor, since the

growth gap between EM and DM countries is againlikely to attract intensive market attention.0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

US Germany

SEBs GDP forec.

Consensus


Sorc: SEB, Co Forca


21/40

22

Ch Fro a cory adpoi, Chia, Gray ad h Uid

Sa oo h o araci, or aryig rao. Chia i

h cory ha b coicid wih h arg w ha

prd or or poii iw o EM cori i gra.

h ca o Gray, high growh ha xpcd by h ar-

i h ai acor ha ph p h cory cor i h

od. Gray rcory i progrig a a rapid pac, ad

i wi probaby rai h cooic gi o h ro zo

or a og i o co. Sic hr i o oary poicy or

h ir ig crrcy io, or a i ha i i

jiaby accoodai or Gray, ic h Eropa

Cra Ba (ECB) ao a io acco h haiy i-

dbd PGS cori (Porga, rad, Grc ad Spai).

Th a o h ro i ao acd by h war i i

h ro chai, ad Gra xporr ar h ab o bro a coparaiy wa crrcy. Th xpor cor i by

ar h o ipora gi o Gra idry.

W ao prdic ha Arica cooic growh wi rpa

xpcaio. Th cobiaio o a wa doar, dyaic

copai ad high prodciiy ha crad a proab

aacrig cor. For h r i i ary or dcad,

h aacrig cor ha icrad i har o Arica

GDP. Mar ar ao cocrd ha ri a, pciay

h US oc ar, wi b adry acd wh h

Fdra Rr op byig gor bod ary i

( h char bow). Th bod prcha ha phd

dow ir ra o ariciay ow , iaig co-

oic growh ad h oc ar. or a, ch

ar worri ar xaggrad ad wh h c r

o o b gigib, hi i iy o b rcd i har pric.

d J

Th ow cor i h od go o apa ad h PGS

cori. Th apa cooy ad oc ar ha b

diappoiig or a br o yar. i r ha rcorc-

io wor oowig h arhqa wi corib poiiy o

GDP growh. B o h ohr had, growh ra wi rai

ow ad h ara diar ay hp a a arady di-

ca rcory or ragi. addiio, apa zro ir-

ra poicy ad orad crrcy ar idicaio ha

h y ay a harpy i a, aig a gai corib-

io o oa rr or a orig ior.

Th ooo or h PGS cori i ayhig b brigh. Th

iaio i h o ac i Grc, whr orig db i

approachig 6 pr c o GDP, whi cooic growh i

aig harpy ad poy i yrocig. Thr ha

rcy b a o wriig dow Gr db o pria d-

r, ohig ha SEB bi wi happ drig . Th

ri o coagio c o h ohr PGS cori i o

gigib. h ohr had, h db iaio i o cr,

o ha i h iaio ipro hr i poia or izab

oc ar gai. A pr, howr, w d i difc o

or ay oio o h prob, ad h PGS co-

ri h rci a ow cor i or od.


D OF Q OULD v LiL impC

This summer the US Federal Reserve is ending its purchases

o government bonds (quantitative easing). These purchases,

under way since autumn 2008, have greatly enlarged the

Feds balance sheet. The Feds ambition has been to increase

the money supply and lending, but since the money has

remained within the banking system there is likely to be little

impact when the second round o the programme (QE2) soon

ends. Interest rates have perhaps been somewhat lower due

to the Feds government bond purchases, but overall interest

rate movements will probably be small when QE2 ceases.

Once the market can leave this source o worries behind,it should have a positive eect on the US stock market in

particular.Source: Reuters EcoWin

2002 2004 2005 2006 2007 2008 2009 2010 2011

USDt

rillions

0.0

0.5

1.0

1.5

2.0

2.5

3.0

USDt

rillions

0.0

0.5

1.0

1.5

2.0

2.5

3.0



22/40

23

mc u

Despite new challenges, this year world

economic growth will be well above its

historical trend... ...and next year the pace may increase, thanks

to accelerating OECD growth

Inlation is now a major source o concern, but

price increases will ease signiicantly in 2012

rc oh, h goba cooy ha acd a br o

chag: ocia r ad ioc i h Midd Ea ad

Norh Arica, a cii war i Libya, a ara diar i apa

ad a w wa o Eropa orig db crii. A a r,

h iraioa cooic p ha o b a rog dr-ig h prig. Thi ha crad grar craiy abo h

aiabiiy o h rcory.

or a, howr, h word cooy wi orco

h w chag. Ergig ar (EM) cooi wi

coi hir rapid growh. Th US pr wi bco or

-aiig ad wi oo pic p or pd ar a pa

r qarr. Po-diar rcorcio wor wi ia

h apa cooy. Goba GDP growh wi h accra

i , dpi o ighig o cooic poici.

Rapidy riig coodiy pric ha phd p word ia-

io, adig o cocr abo pri high iaio. A

coo-dow i coodiy pric, oghr wih ow dryig

co prr i h ECD idriaid cori, wi -

rh ad o a baia owdow i cor pric

icra x yar.

U c d ccl

By a idicaio, h r-qarr p i h US cooy

wa porary, wih r wir wahr ad rgig ood

ad pro pric haprig growh. Aog idicaio o a

rbod ar propc o a rr o owr iaio, a grada

abor ar ipro which wi b pria co-

pio ad rob opii aog bi, whichar joyig high arig ad rog baac h. Th a-

r p arg capia pdig d wi ao b a cooic

driig orc. W prdic ha GDP wi icra by j bow 3

pr c hi yar ad ary 4 pr c i .

ccud dul h u z

Th ro zo cooi ar howig icraig dai.

Gra growh rai high, ad opii i a rcord

accordig o h F bi i idx. Gray

GDP wi cib abo 3. pr c hi yar ad or ha .

pr c i . Frac ad ay ar growig or owy,

roghy o a par wih hir hiorica rd (.- pr c).

rao i ggih growh i doic dad, whi

a-growig xpor ar ira i Gray xpaio.

Spai wa o h bri o a w rcio a i b ha

ic abiid. D o draaic ca ariy i Grc,

rad ad Porga, h cori wi a dci i GDP

hi yar a w. W or ora ro zo growh o abo

pr c boh hi yar ad x.

Ocl bh cc wh

Th Briih cooy wi b hd bac hi yar by ca igh-

ig ad high iaio, which wi dri hohod

prchaig powr. ig hi ar h wa Briih pod

ad rog iraioa dad, which wi cra good co-

diio or xporr. Toghr wih propc o rahr rog

capia pdig, hi wi hp prop p cooic growh. W

prdic GDP icra o . pr c i ad . pr c

i .

dc cu cc ucc

Th Nordic cori wi coi o rap acrocooic

cc. Th cori ar characrid by rog co-

oic daa i h or o bdg baac, pbic

cor db ad crr acco baac. Mawhi xpor-

r ar w poiiod o rpod o growig goba dad.

Crrcy apprciaio i Swd ad Norway d aog

ohr hig o rog daa ad ary y ir ra

hi wi o ow h xpaio o ay gra x. W

prdic ora Nordic GDP icra o ary 3. pr c hi

yar ad or ha . pr c i .

Worl econo will contine its ptrn



23/40

24

ul d wll d J wh

Th ara diar ad i coqc ar aig aorca o apa cooic rd ay crai.

h hor r, aciiy appar o ha a or ha

xpcd. Thi i arod, h ipac wi cary b or -

r ha ar h Kob arhqa o . Th daaio

i argr. a, abo pr c o h cory capia oc

worh 3-4 pr c o GDP o ha b droyd.

B dop wi iy oow h par o arir a-

ra diar. Sarig i h hird qarr, h i c

o rcorcio or wi graday a h ppr had.

a a who, w or GDP growh o oy . pr c.

growh wi accra o abo . pr c.

h wll ld m Aia rgig ar ar i adig h cooic cyc

ad driig goba growh, b orhaig ri ha bco

icraigy appar i h pa ix oh. Toghr wih ri-

ig coodiy pric, hi ha jid igica cooic

poicy ighig, wih a oc o oary poicy. Thi wi

hp a pric prr ad prpar h way or a coo-

ic o adig. W h xpc rgig Aia cooi o

coi xpadig a a coparaiy rapid pac (7.-8 pr

c) i ad .

W prdic ha Chia GDP wi grow by ary . pr c

hi yar ad 8. pr c i . A cobiaio o owhaowr xpor xpaio ad a ighy dyaic doic

ar wi hp ow GDP growh copard o ary .

pr c i , b growh wi xcd h 7 pr c arg

ad i h w -yar pa. aio ha argy b

dri by ood pric ad wi ow graday ro hi -

r. dia, w orca a owdow i GDP growh o 7 pr

c i ar hi yar 8 pr c (8. pr c i ),

b xpor ad idria prodcio wi coi o pror

rogy ar a wir p.

h wll lw L c wh

Th Lai Arica cooi which grw by 6. pr c

a yar wi dcra o 4.- pr c i . aio

wa arod 6. pr c i ad ro rhr ary hi

yar, adig o widprad oary poicy ighig. For

xap, h Braziia cra ba bchar SELC ra

ha b raid ra i i h pa yar. Mor hi ca

b xpcd. D o ighr cooic poici, growh i Brazi

ad h rgio a a who wi ow o j or 4 pr c x

yar, b Lai Arica ca i how ar br gr ha

h ECD or boh pbic cor ac ad crr acco

baac.

ccl c u

Th Ear Eropa cooi wi pd p i -, hogh goba growh wi ow a bi ad ay

cori icdig Poad wi igh hir ca poi-

ci. Copii xpor wi rai a rog driig orc.

Mawhi copio ad capia pdig ar awaigro hir crii-priod hibraio. h hor r, rapid

coodiy-dri iaio ha drid prchaig

powr, b w prdic ha rgy ad agricra coodiy

pric wi a i h cod ha o . Drig h pa yar,

br growh ad iprod coro o pbic ac ha

rghd h ar codc i Ear Erop.

Th grada pr i h Baic cori i coiig, aiy

ha o rog xpor growh, b doic dad i

oy owy rcpraig ro h crii. - aa

growh ay rach 4- pr c, d by Eoia. Thr i i

ri o a r pr i iaio. Baic cooic ibaac

ha gray diiihd, b ajor rcra prob i habor ar p bdg dci i Laia ad Lihaia

po coid chag.

Wld cc wh hcl d

W xpc GDP i h rgig ar phr which ac-

co or ary pr c o h word cooy (adjd

or prchaig powr parii) o grow by 6. pr c i

ad a bi or owy i . Mawhi w prdic

growh i h ECD cori o abo . pr c hi yar

ad j abo 3 pr c x yar. Goba cooic growh

ay h arag ary 4. pr c i -, a pac w

abo i hiorica rd dpi a h w chag.


Macro ary

LigLy LOW gOW i Ci D iDi

China, GDP chan ge India, GDP chan geSource: Reuters EcoWin

2005 2006 2007 2008 2009 2010

0

12

3

4

5

6

7

8

9

10

11

12

13

14

Percent,year-on-year

0

12

3

4

5

6

7

8

9

10

11

12

13

14

In both China and India, the slump during the 2008-2009 global

recession was noticeably shallow, ater which GDP growth accel-

erated rapidly. Due to higher ination in the wake o the upturn,

monetary and other economic policies were tightened in both

countries. This led to some cooling o last winter. Further decel-

eration is likely in the coming year and we oresee sot landings.


24/40

25

Numerous risk actors are already priced into

markets

Stock exchange indices approaching

pre-crisis levels but with lower relative

valuations

Ater a bad patch in March, volatility is back at

more normal levels

Sic w pbihd h a Investment Outlook(Fbrary

), goba qiy ar ha b acd by a,

xpcd a w a ri. So o h ri wi

pri or yar o co (or xap h Eropa/US db

iaio), whi ohr wi wa or i. B ic odayaaio ar a or ar hir -yar arag, hr i roo

or a rhr b ar dpi hor-r rbc.

m u

Mar wr o prpard or h dd r ha hi

Tiia ad Egyp ary i . Doraio h prad

o ohr cori i Norh Arica ad h Midd Ea. igh

o h , ar wid harpy riig oi pric.

Eqiy ar bca oicaby or ro a a dirc

coqc o caaig r. Th oaiiy o h S&P

idx, ard by h VX idx, ro ro pr c o

abo pr c.

Eqiy ar wr h arady rab wh h arh-

qa ad h bq ai hi apa o March hi

yar. Far o a ii car powr pa diar dro

qiy ar o ow. Th MSC Word dx or

ha 6 pr c drig or radig day, ad h VX idx

rapidy rgd by prcag poi o 3 pr c.

Th apa oc ar wa aray h o rogy

acd, pgig by 8 pr c drig h a priod.

apa rpr pr c o h word cooy b ipor

acco or oy pr c o i GDP. apa ipor h

oy oa . pr c o goba GDP. Eqiy ar qicy

cocdd ha a hor-r rra i apa growh wi

ha oy a iid ipac o goba cooic growh a a

who. Shar pric rcord o pr-diar by h d

o March.

Apri, h oc hid ro h iaio i Norh Arica

ad apa o h US ad h Eropa db crii, ad o-

wha ar o r-qarr copay rpor. Sadard &

Poor dowgradd h US gor AAA crdi ooo

o gai a a coqc o coioy growig bdg

dci, b qiy ar wr oy argiay acd by

hi aoc prhap bca by a o cooic

growh, h US ha grar poia o ro i db prob-

ha i Eropa corpar.

Ahogh h crii i par o Erop, pciay h o-cad

PGS cori (Porga, rad, Grc ad Spai), codpoiay ad o db rrcrig ha wod ipac h

goba oc ar, w hod o dria h abiiy

o ar o dico ch poib chag or i.

Uwd dju xc

Fir-qarr corpora rpor proidd goba oc xchag-

wih poii rpri. A ajoriy o US, Nordic ad ohr

Eropa copai rpord r ha wr abo xpc-

aio. B whi poii gr d o pward adj

i goba arig xpcaio, h a i o r o crai

ajor cor ad copai i h Nordic ar. Srog

Nordic crrci rai o h USD ha d o o hxpcd ipac o good qarry rpor o r arig

ia. Eropa pro xpcaio ha a argiay

drig h pa hr oh.

Mo qiy ar ha od idway i h pa hr

oh. US oc xchag ha d h way wih hir poi-

i prorac, whi h bigg aggard ha b apa

(dradaby), Brazi ad dia. A hi wriig, h VX

idx i a arod pr c, idicaig ha goba qiy

ior ar qi coorab wih hir crr xpor.

Scor-wi, o ar hi yar ba ad ohr acia cor

copai ha go ro big h hiig ar (+ pr

c drig r wo oh o ) o ig o, whi

Attractive valations sstain stock arkets


qu


25/40


Eqii

0

5

10

15

20

25

30

35

40

45

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

0

200

400

600

800

1 000

1 200

1 400

1 600

1 800

Next 12m P/E Next 12m P/B Next 12m RoE Price

0

5

10

15

20

25

30

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

0

50

100

150

200

250

300

350

400

450

500


0

5

10

15

20

25

30

35

40

45

50

2006 2007 2008 2009 2010

0

500

1 000

1 500

2 000

2 500

3 000


0

5

10

15

20

25

30

35

40

2001 200220032004 20052006 20072008 20092010 2011

0

2 000

4 000

6 000

8 000

10 000

12 000

14 000

16 000

18 000

20 000


vLUiO i DiFF OCk mk

The various key ratios can be read using the Y-axis on the let, while the Y-axis

to the right is related to the underlying equity index. The Price/Book ratio ismultiplied by 10 to make it compatible with Price/Earnings (absolute gures) and

Return on Equity (gures in per cent).

h ra ad ir cor ha coid o rgg i h

igh o r i Norh Arica ad h Midd Ea a w a

riig co, a dirc coqc o highr oi pric.

rc oh, hah car hioricay a di cor

ha rgd a h wir o a yar-o-da bai, idicaig

or caio ior i.

icd ll

Looig ahad, or daa iw o h goba oc

ar i ha ri appi wi p icraig ad ha h

b ar wi coi. i r ha xpcaio rgard-

ig hor-r goba growh o b ig o, ad

w igh o dowward riio d o or

acrocooic iga. W wi ao wi graday

ppori ca ad oary codiio (h d o QE).

Howr, w bi ha o o h chag ar w

ow ad o o a porary ar, whi aaio wi

coi o ppor qii a a a ca. By way o co-

pario, bw 4 ad 6 goba qiy idic rodpi aig prchaig aagr idic i h US ad a

o i Chia. i h abo rahr ha h hor-

r rd o h acrocooic idicaor ha ra

ior dad or qii.

Looig a qii a a a ca, w d aaio o b

o ia iporac. Drig h pa oh, qiy ar

ha ri i rpo o icrad arig, whi pricig

ip ha raid a. a cario whr iaio

i coaid ad ar ar ig oy a odra ri i

og-r bod yid, w wod arg ha hr i ap

roo or xpaio i h word o qii. r od how

ha o goba qiy ar ar pricd a or arod hir

arag or h pa yar. Looig a boh Pric/Earig,

Pric/Boo ad xpcd Rr o Eqiy (RE) or ario

ar, w d ha ahogh ra qiy idic ar oy

- pr c away ro hir pr-acia crii , hir

rai aaio ar ch owr hi i arod.

pl .

Vaaio ar away a coqc o h baac bw

poia or rhr gai ad ipici ri. r h pa

oh w ha ar a o ) h Eropa/US

db crii, ) icraig iaio ar, 3) icraig crrcyoaiiy, 4) poiica r i Norh Arica ad h Midd

Ea, ) h diar i apa ad 6) harpy riig coodiy

pric. Y o oc ar ar p bw - pr c

drig hi priod.

U

UOp

Ci

Jp

Sorc: Fac


26/40

27

Eqii


Sic ar ha arady pricd i high do o ri drig

h pa oh, copd wih a hahy r-qarr

rporig ao, w bi hr i roo or a rhr b

ar i goba qii.

Th US qiy ar i howig hor-r rgh, haig

rachd w high hi prig. Soc xchag i Erop

icdig h Nordic ar radig a or arod hir prio

high ro hi pr cyc. Mo rgig ar (d by

h BRC) ar howig hor-r wa, radig bow

boh hor- ad og-r arag.

Bow w ha aggrgad or aaio od io a ip

arix. Uig h coor i a radiioa rafc igh, poii

acor ar idicad by gr, ra by yow ad ga-

i by rd. A how i h arix, crr aaio ar i

a poii o ra rag. Eia riio i h US ha

rdd pward hi prig, whi Eropa ia ar

argiay dow. Th Nordic ha a chag orig arig ia, whi apa ha o cor xp-

ricd arg dowward riio d o h c o h

March diar.

uwd lu

r h pa oh, acia ar ha dicod

ip ri acor. W aiai ha hr i roo or ajor

pward aaio ro pr a o o h ri

a a or bdd ar. W coi o bi ha

h cooic xpaio wi r i coid ppor or

qii a a a ca, oy bad o od aaio.

W h xpc o rhr rghig i oc ar

drig h coig 3-6 oh.

COuNTRy

/REGION

P/E ABSOLuTE P/E COmPAREd TO

HISTORy

P/B COmPAREd

TO HISTORy

ROE COmPAREd TO

HISTORy

EARNINGS ESTI-

mATE REVISIONS

TECHNICAL

ANALySIS

U

u

J

Ch

id

bzl

u

wd

D

w


27/40

28

High yiel an Em debt reain best choices

Modestly rising OECD key interest rates and

sovereign bond yields

Gradually less resolute monetary tightening in

the EM sphere

High Yield and EM Debt still the best xed

income investment choices

Goba xd ico prpci rai highy arid, boh

gographicay ad wih rgard o dir g o h

xd ico ar. Bhid hi ar ch acor a dirg

oary poicy dircio, dir acrocooic codi-

io ad i h corpora word.

May cra ba i h ECD idriaid cori

ow d h i a owha ricy dciio-aig

iaio. crad iaio aiy d o or xpi

coodii i driig hohod prchaig powr,

jopardiig h ba chac o ig hir iaio ar-

g ad riig highr iaio xpcaio. A i oary

poicy ig i Apri, h Eropa Cra Ba (ECB)

aachd h gra iporac o h ar arg ad

h bga i ra hiig cyc.

rc oh, h Ba o Egad (BoE) ha b i a

dciio aig iaio iiar o h ECB, b ha o y

raid i y ir ra. Mor ad or br o h

BoE Moary Poicy Coi ar aig oward a hi,

howr. Th US Fdra Rr (Fd), i cora, o

b i o hrry o bgi y ra caaio. Thi appi

or o h Ba o apa (Bo), which ao a io ac-

co h daaig cooic coqc o hi prig

ara diar.

A h ohr d o h ca ar cra ba i rapidy grow-

ig ECD cooi ch a Swd, Norway ad Araia,a w a hir coag i ay par o h rgig ar-

(EM) phr, which bga ir ra hi i i

ordr o p iaio i chc.

Th aaiabiiy o par prodcio rorc i h or o

abor ad prodcio aciii rai qi arg, pciay

i h US, b ao i Erop. aio xpcaio ha

raid od i pi o ryhig, ad h coodiy

pric pr ha ciad. Agai hi bacdrop, hr i o

rao or ECD cra ba o qicy ad rhy

hir ir ra wapo.

h EM phr, aiy i Aia xcdig apa ad i Lai

Arica, cra ba ha b rachig p hir y ra

or or ha a yar. So ch a h Pop Ba o

Chia (PBC) ha ppd highr ir ra wih

ar o crb dig by ba. Th rao or h o-

ary poicy dircio hy ha cho ha b orhaig

prob i h wa o high cooic growh ad ac o

par prodcio capaciy, p a coodiy-dri accra-

io i iaio.

Lw l c u

Th ar ow o b o hir way oward haig

h idd c. Th growh ra i owig. A a co-qc, dryig iaio xcdig ood ad rgy

wi probaby dci ar hi yar, whi aig pric or


Fxd c

Divg mOy pOLiCi

UK, bank rateEuro zone, refi rateChina, one-year lending rateUS, federal funds rateSweden, repo rate


2000 2002 2004 2006 2008 2010

0

1

2

3

4

5

6

7

8

Percent

0

1

2

3

4

5

6

7

8

Due to dierent cyclical phases and outlooks, the policies o ma-

jor central banks diverge greatly. In most o the EM sphere and

in ast-growing OECD countries, key interest rate hikes began

in 2010. The ECB began such hikes in April, while the Bank o

England and the Federal Reserve have held back so ar.


28/40

29

Fixd ico

agricra prodc i paricar wi a gra pric pr-

r. EM cra ba cod h graday bgi o ow h

pac o hir ighig ar drig h x ix oh.

Gor bod yid i h ECD cori ro carya wir ad h a bi drig h prig d o owr

ri appi i h wa o h r i Norh Arica ad

h Midd Ea, h apa ara diar ad a ri

o acrocooic iga ha wr war ha xpcd.

Today hr ar ay idicaio ha bod yid wi agai

had pward; cra ba ar raiig hir y ir ra

(hogh ody), ay cori ac ry arg

bdg dci ad ri appi i xpcd o b hahy.

Riig yid wi b accopaid by gai c o bod

pric, ad ECD gor bod ar h o araci a

xd ico i.

wd m

La i ad ary i , goba ior od boh EM

qii ad bod o a arg ca, wih aig pric a a

coqc. Th bacgrod wa aiy pro-aig ar

harp pric icra, orhaig ri ad oary igh-

ig. Sic h, ior ir ha rrd ad pric ha

ri. Th propc or EM Db ao appar brigh. Yid ar

highr ha i h US ad Erop, or xap. Bdg dci

ad orig db ar w bow ECD . Th dagr o

iaio i adig, ad cra ba ighig ar wi

graday bco ro.

Th propc o rogr EM crrci drig h coig

yar pary bca cra ba ar ig crrcy appr-

ciaio o owr doic iaio ia chapr ipor wi

ao a hi a ca araci o ay ior doi-

cid i ECD crrcy ara.

h yld cu j d

Aohr xd ir i arai ha rai a-

raci i corpora bod. Thi appi pciay o h High

Yid g, which i a ia rpc ha rid h

ar iabiiy o hi prig ad ha h dird co-

iy good rr ic h bgiig o . Thi a

ca wi coi o b ro h goba cooic pr,

icraigy rog corpora ac ad propc o

ri appi, oghr wih ior arch or high yid.

Arica High Yid bod ow or a arag ci

rr o ary 7 pr c, copard o abo 4. pr c

or Grad ad arod 3 pr c or gor

bod (-yar).

ECD gor bod yid boh hor- ad og-r

ar idd iy o ri, ad h ppy o corpora bod wicoi o icra drig h coig yar. Th yid prad

bw corpora ad gor bod rai wid,

howr. For xap, or B-rad US corpora bod i i

abo .7 prcag poi or ha i -6 (bor

h acia ad cooic crii). Mawhi h prcag

o barpci aog High Yid db-iig copai

i coiig o a. h US i wa arod 3 pr c ad i

Erop arod pr c a h d o March (o a -oh

bai). Drig h r qarr o , oy igh High Yid

db ir w barp a h goba . Accordig o

Moody crya ba, ch barpci arod h word wi

ha a o . pr c o ir by Dcbr .

h c h dwd

Gi a owr ad owr prcag o barpci ad a

r-argr poii raio bw h br o US High Yid

copai ha ha rcid highr raig (or ha 4

ic aary ) ad h br ha ha b dowgradd

(wr ha 8 ic aary ), h ri i hi porio o h

xd ico ar ar aig. Th pgradig o copai

i pary d o a arg wighig or h iqidiy i corpora

baac h. Cocrry, rcori ar iy o b argr

or ior hodig bod id by copai ha r-

h go barp.

Corpora bod, r Grad ad h High Yid,

ha ord h ba o or xd ico poroio ad or

xd ico i rcodaio ic ary .

Drig hi priod, h poroio ad i ha pro-

idd oadig ri-adjd rr. A idicad abo,

h ooo or h High Yid ar ao rai brigh. A

h cycica pr ar ad yid prad arrow, howr,

h xpcd rr o hi a ca wi hri. B i wi b

o i bor ay ohr ir-barig arai ca

rioy cop wih High Yid.


50

100

150

200

250

300

2003 2005 2007 2009 2011

50

100

150

200

250

300

Equities, mature economies

Bonds, US

Bonds, EM, local currencies

Index

2003=USD1

00

Source: Bloomberg

Since 2003, EM Debt in local currencies has shown signicantly

better growth in value than both equities in OECD countries and

American government bonds. Given our orecast o a cyclical sot

landing, lower ination and continued good economic unda-

mentals in many countries, the outlook or EM Debt appears

bright.

m Db b i CL


29/40


30/40

31

c bw br ad wor High Yid ir. Thi

wi ao rhr ipro h poia or E Dri ra-

gi, which wi b ab o a or corci poiio,

rhr iproig h qaiy o i opporii.

Eqiy Log/Shor ragi ar ay h ai o dr-

ad ad idiy wih. By har yo i ad hor ho

yo do i. Rahr ip, acay, b hi o cor r-

qir ha boh h aayi ad poiioig ar corrc ad

dicipid. Th praiig ar cia hod pri ac-

cpab opporii or hi ragy a w, b w ado-

ca o caio wih Log Biad hdg d, ic o

o h i h ar id i ar p o a high prc-

ag o capia. Thr wi b o p ad dow i hi yp

o d, b ha or ordiary qiy d i gra.

mu h d hd ud

Ahogh w ar paiig a ry aorab cario or hdg

d, h ar ar o cor o wiho o bp i

h road. A oraiaio proc a i, ad h par

o o d o or paa, wih arg ad a

corrcio aog h way. Throgho h cooic rcory,

w ha hdg d a a grop prorig ry w i

o oh, h oig a o o a i ohr oh. Thi

ha b rpad, wih a corrcio abo ry or oh.

W bi ha w ca xpc hi par i h r a

w. W aw hi o rcy i h r w o May, wh

w agai xpricd a gi corrcio, which adry

acd ay hdg d. Drig h yar, ay hdg

d ha bi p poiio bad o a war USD ad ri-

ig oi pric. Th ar iaio chagd draaicay wh

h doar qicy bga o apprcia ad oi pric droppd

by arod pr c i a hor priod. Sch harp, rapid

o obioy ac hdg d, pciay ho

ha bid p poiio ha oow ar rd. Sch hdg

d ragi a CTA (yaic i-a aag),

Goba Macro ad Log Biad Eqiy L/S oo a ra baig,

wih dowr o arod .-4 pr c o idx or a

w.

Th o h ha h poia o wip o a hird

or or o a yar rr i a hor a priod a a w or o.

Thi how h iporac o ryig o p rac o ch rap-

id hi, i o ohrwi a a idicaio o h proraco ohr a ca. W rh crry ha a ry

poii iw o hdg d a a a ca. Mo i

o h id o hdg d, ad w xpc h ora i-

cia o ipro rhr. A away, qaiy pay

a xra arg ro or hdg d, b by way o ary,

h i cia i good.


Hdg d

INdEx/STRATEGIES yTd

(April 2011)

2009

Dw J Cd u C d Fud idx .% 8.% 3.%

Cl .% .6% 46.3%

m .% .8% 6.86%

D .% 7.% .84%

Fxd ic .% 4.46% 3.%

gll mc .% 8.% .8%

L/h qu .% 6.84% .8%

C/md Fuu .% 3.8% -.%

ky QULiiv pC i COOig Dg FUD

70

80

90

100

110

120

130

140

150

Jan/07

May/07

Sep/07

Jan/08

May/08

Sep/08

Jan/09

May/09

Sep/09

Jan/10

May/10

Sep/10

Jan/11

Dow Jones Credit Suisse Hedge Fund Index

Dow Jones Credit Suisse Managed Futures Index

HFRX Global Hedge Fund Index

Index

The returns o recent years in the hedge und eld have shown

divergent natures, depending on what strategy investors have

chosen, and also depending on whether the index includes avery large number o hedge unds across a broad spectrum

(HFRX) or whether the index has a more qualitative ocus

(DJCS Index). The chart shows the importance o trying to se-

lect hedge unds based on qualitative aspects. The table below

shows what good characteristics CTA/Managed Futures had

in the last crisis, but that this strategy has had a more difcult

time since then.

Sorc: Dow o Crdi Si

Sorc: Boobrg

Om Dg FUD Ub-gi

The table shows the perormance o various common

hedge und strategies ater the big 2008 downturn.

Figures or 2011 are until the end o April and showgood upturns, among other things due to ne gures

during April itsel.


31/40


Rent levels are rising ever aster and vacancies

are alling

Better borrowing opportunities will lead to

higher transaction volume

Main risks in China and the United States

Th goba cooy i coiig o rcor ro i ajor

crii, ad h ra a ar i gray i br hah

oday ha bor. arir i o Investment Outlook, w

ha aiaid ha hi oraiaio proc wod occr

i wo pha r a ior-d pha ad h a broadr,

or cooicay propro pha. Thi i bca coo-

i wod b gaiig o, wih highr prodcio

ad owr poy a coribig poii acor.

Excp or crai porio o h goba ra a ar,

w bi ha h ar i ow ry i pha wo. Larg

porio o h ar ay b oraid, i ay ca

propri wih good gographic ocaio. i Goba

Mar Prpci or h r qarr o , o Lag

Laa wri ha or h r i ic h goba acia

crii, dowid ri ar ha pid ri. Thy add ha

h goba ra a ar i h rog i wo yar.

Thi iw coicid wih ha o a ajoriy o goba ra a

aay.

Car ig o hi ipro ar ha r ar cib-

ig ad acaci ar aig. Th char bow how h

chag i r i cd cii drig .

R icra ar ao howig ig o accraig, a h

word cooy ipro. Thi rd i ry car i priary

ara, whra codary ad riary ara ha o ray

a o y, b hy ar ab ad wi ipro. Vacaci

ar aig a a c o h br ar cia. Cobid

wih ow o w corcio i h Wr word, hi

wi w r icra ad owr acacy i c-

odary ad riary ara a w. h crr rd pri,hi hod b id wihi a w qarr.

Th picr i dir i rgig ar cori. o

pac, pciay Chia, ahorii ar choig o acc

o capia i ordr o p ra a pric ad iaio i

chc. Drig a rc rip o Chia, w aw ha hi ha had

a ipac. wa id ha ay arg ycrapr projc

had b had i id-corcio. A raiy arg -

br o ycrapr wr oy cocr o, b o wor

wa goig o a h o. Th iaio i coqy

dir ro h Wr word, ahogh hi wa oy a

Contine noralisation, bt with probles

l

-40 -30 -20 -10 0 10 20 30 40

Dubai

Madrid

Los Angeles

Frankfurt

Tokyo

Amsterdam

New York

Chicago

Mumbai

Sydney

Toronto

Paris

Washington DC

San Francisco

Brussels

London

Shanghai

Sao Paulo

Moscow

Singapore

Hong Kong

Change in rents

Change, per cent

LvL mOvig UpWD

On the whole, rent levels rose sharply during

2010 and are continuing to rise in a growing

number o cities.

Sorc: o Lag Laa


32/40

33

a gip o raiy. Udryig growh i rgig ar

cori i rh rog, ad ay ra a projc

wi dobdy b copd. Th char bow how ra-

acio o, accordig o o Lag Laa.

icd ul cl

Thi icra i raacio o ha b ad poib

pary bca ba ar hahir ad hr i a argr ppy

o capia or ra a ior. Br borrowig oppor-

ii, aog wih a rogr goba cooic iaio ad

arg br o ior who ar or opiiic abo h

r, ha oghr rd i highr raacio o,

riig r ad aig acaci, b ao riig propry

pric (or aig rr o capia). Drig h pa yar, ay

ra a ior ha dob-digi icra i a.

xap i h riig a o ra a har a-rd a h FTSE EPRA/NARET Goba N, which ha gaid

abo pr c i USD r hi pa yar. Pr ra a

i ha ar o oc xchag id ha ri by

arod 8 pr c. Th pa yar ha gray b good or

h ra a ar.

Th prob or a acia ior i ha i i o away

o ay o i i ra a ha cobi good rr ad

ow ri. Eihr hr i a qiy ri i propri ar radd

ia id copai or i i o cary o b id or

ay yar. Tho who wa hir capia o b iqid ha

had wr choic. Larg Gra ra a d ha b

o i arai, wih Gra ahorii crry

riwig how hy wi opra i h r. W wi wha

co o o hi xaiaio.

Wha, h, ar h ri i h ra a ar? Chia

agai. Mar payr ar oc agai bgiig o a abo

bbb dci i o par o Chia a prob

ha cod ha rahr r coqc. Corcio

projc had i id-cor (pciay appar i h ciy

o Chogqig) cod poiay ad o h coap o co-

rcio copai, which wod ca rhr io i

h y. Wha i poii i ha Chi ahorii ha

how a i had i cooic aag ad ha

icd ar i h righ dircio whr hr wr

prioy bbb dci. Th o probab cario i

ha hy wi ccd hi i arod oo, b i i a rahr

dica baacig ac.

Th x prob rai h Arica hoig ar. Th

corcia ra a ar oo br, ad h prob

ar aiy i h ridia ar. Th ppy o capia i

crcia, b h haig o h crdi ar i occrrig owy.

W ha poii idicaio i h abor ar or

h pa w oh, wih ior rra hr ad hr, b

aiy a dc pac o ipro. Thi wi obioy

b h hoig ar. Now w ar ao waiig or h

ba o ccy g rid o a arg proporio o hir badoa. hy ca aag h wihi h orab r,

i hod b poib o ipro h o o dig

aciiy, a a o o x. ha ca h hoig ar-

boh i r o pric ad r hod rahr qicy

boc bac ro oday ow .

gd cl l

Aohr poii dop gobay i ha a br o

prig propri ha chagd owr drig h pa

yar. Thi rgh h prcpio aog ior ha

h ra a ar i iproig. W bi ha h poi-

i acor i h ra a ar wi coi ad

ipro rhr. Propry ior wi icra h iiy

o hir aciiy wh h crdi ppy g br ad a h

word cooy ipro. Th ar cia, pciay i h

Wr word, i icraigy adaago o adord d

o hriig acaci, riig r ad h a br o

w corcio projc. Gray paig, hi i a good

iaio or h ra a ar ad og-r propry

i, b hr ar o robo prob ha

d o b aoidd.


Ra a

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

Americas EMEA Asia Pacific

USDb

illions

gOOD mOmUm i L

mk

Better borrowing opportunities together with

stronger global economic conditions have

led to higher transaction volume, rising rentsand alling vacancies, but also rising property

prices.

Sorc: o Lag Laa


33/40


Favourable economic situation or PE

Prospects o rising company values and attractivevaluations will benet this asset class

Risks consist o weaker economic growth than

expected and new nancial worries

W ar icig o or gray poii iw o h propc

or pria qiy (PE). So ar hi yar, ch a brigh picr

ha o ariaid i h or o igicay riig har

pric, ad hi igh b a a diappoi. For x-

ap, h SEB Lid Pria Eqiy Fd ha gaid wo

pr c. Y w bi hi hod b iwd a a ig o

rgh. Th rao, o cor, i ha pria qiy ha ao

b acd by a h ajor hi yar ha ha co-

ribd o a bpy road or riy a i gra.

rc oh h ragdi i apa, r i h Midd

Ea, h db crii i Erop ad iaio worri ha cra-

d craiy abo h gra cooic rd ad ha di-

iihd ri appi. Mawhi w ha ay ig o

hah ro h corpora word ad o ro h acia

ar. Aog h ig o hah, gobay rog qar-

ry rpor ro id copai ar pciay oworhy,

aog wih h ac ha rgr ad acqiiio appar iy

o ar p agai o a broad ro. Mawhi h dig i-aio i aig or ad or or PE copai, ad ba

ar bcoig or wiig o proid acig.

Wh aayig a a ca, i i ay o g c i chi-

ca acor ad o aig gra igicac o h a ,

a h xp o y daa acor. i h ipora

o rbr wha dri og-r a i pria qiy:

PEisacyclicallysensitiveassetclass

thatprovidesanexposuretocorporateprotswith

ragig

Toperformwell,PEneedsastablenancialsituation

Givenrisk,PEneedsmarketswithgoodrisk

appi

Cycica iiiy, ad h xpor o corpora pro,

appar o b a adaag i oday iaio. A idicad

whr i Investment Outlook, w ha a poii -daa iw o goba cooic growh drig h x

ra yar ad ar aicipaig growh cary abo h

og-r rd. A xpaid i arir i, hi paricar

pha o h cooic cyc i oray h b or PE co-

pai. Ar h rcio, h or o h copai

o rai hir poroio bi ha d o fci

opraio wih h poia or high argi. Righ ow,

ar h cooic pr

investment outlook: navigating through risky waters

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