SEB House View 07 March 2018

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1 SEB House View 7 March 8

2 Summary Decision variables Macro and Markets Market Indicators Asset Class and Sector Views Risk Environment

3 Summary - We maintain risk utilization at 75% despite the prevailing market volatility - The increased volatility is in our view caused by the entry/transition into a regime in which inflation and increasingly hawkish central banks have to be discounted - It is in other words not a consequence of the Italian election or the uncertainty about potential trade-wars - We estimate that the new regime is discounted by the equity markets; visible by the lower multiples - We do not expect further multiple contraction but do not expect a reversal to the levels achieved in the old regime of 6-7 either - Earnings will be the main driver of equities - The new growth+inflation regime will mirror historical late cycle regimes - Inflation, volatility, rates, and equities will all move higher - Rising inflation and hawkish central banks will not be able to force equities lower as long as growth is positive - Leading indicators are not (yet) signaling an imminent slowdown in growth - The negative impact on margins from rising real rates and wages in the US will be mitigated by the impact of the tax reform - Combined with strong topline growth we expect to see positive equity returns on both a tactical and a strategic horizon 75% The speedometer controls to what extent the portfolios should utilize their risk budgets. It is connected to the model portfolio (page 4) which at all times utilizes its risk budget in-line with the speedometer. In a very general sense it can be interpreted as equities on/off (with 5% being neutral). Slide 3

4 Multi Asset Model Portfolio - We maintain the asset class positioning of last month - Underweight High Yield, government bonds, and commodities - Overweight equities and Emerging Market Debt - We estimate 8 EPS growth for MSCI AC in the vicinity of % (local currency) - Due to both global margin expansion (in the US due to the tax reform) and strong global topline growth - We do not expect multiple expansion for global equities - The level of multiples seen over the past 4 years will not be regained as we are entering a late cycle regime with both strong growth and rising inflation - The underweight to High Yield bonds is motivated by both stretched valuations and a fundamental view that we are about to enter the later stages of the business cycle - As real yields and wages starts to increase in the US we expect to see corporate balance sheets facing headwinds for the first time since This underlying pressure will ensure that absolute returns will be challenged and that any potential spread compression will come from rising core rates - We maintain our significant overweight to Emerging Market Debt - Due to strong external balances we expect EM to remain resilient to a more hawkish FED - We want to see more details and the impact of the potential trade war before we change our structural view on global trade Model Portfolio Government Bonds Equities Investment Grade High Yield Bonds Emerging Market Debt Commodities Cash -3% -6% -3% % % % % Allocation Strategic allocation Diff -3% % 7% % Slide 4 Long only portfolio. Yearly VaR(95%) ex. mean between 7% and %.No restrictions on the individual asset classes. The weights are set manually by the House View committee; i.e. they are not based upon an optimization model.

5 Equities EM FX Oil Size VIX Momentum (US) Quality (US) Value (US) Growth (EU) USDSEK EURUSD USDJPY USDGBP US Y Yield US Y Yield SW 5Y Yield DE 5Y Yield Momentum Risk contribution Bloomberg Com US HY Spread EU IG Spread EMD Spread EM Asia vs EM Other Idiosyncractic Bloomberg Com US HY Spread EU IG Spread EMD Spread EM Asia vs EM Other EM vs GL US vs EU JP vs GL SW vs GL Tracking error Momentum (US) Quality (US) Value (US) Growth (EU) EM vs GL US vs EU JP vs GL SW vs GL VIX EM FX Size Equities USDSEK EURUSD USDJPY USDGBP US Y Yield US Y Yield SW 5Y Yield DE 5Y Yield Momentum Idiosyncractic Oil Multi Asset Model Portfolio Risk characteristics Value at Risk (95%) Tracking Error Source: SEB Source: SEB Slide 5

6 Return Multi Asset Class Risk and Return Estimates, M % 8% 6% EM Equities Swedish equities Global Equities 4% Hedge Funds EMD LC % High Yield Commodities Investment Grade % -% Government Bonds % 5% % 5% Risk Source: SEB Slide 6

7 Regional equity model portfolio - We remove the underweight to US equities, maintain the overweight to Emerging Market equities, and introduce an underweight to European equities - All of these positions are intertwined and should not be seen in isolation - High excess production capacity in both Europe and Emerging Markets implies that both regions are leveraged towards our strong 8 growth outlook - As the likelihood for a global trade war, or speculation hereof, has increased we decide to finance the overweight to Emerging Markets by an underweight to Europe - We expect this to reduce the drawdown/act as a hedge of our regional equity model portfolio in case the political noise continues and/or escalates - We are acknowledging the recent EUR strength which we expect to all else equal hamper the upside potential for positive earnings surprises in Europe - As we are removing the underweight to the US we are reducing the implicit underweight to tech which during 7 was a drag on relative performance - We remove the overweight to Japanese equities - As BOJ in February lifted the discussion about an end to QE our confidence in a weaker JPY on a tactical horizon has deteriorated - As this has been one of our primary arguments behind our position we remove the overweight Regional equity positioning EM Ex. Asia EM Asia East Asia ex. Japan Sweden Japan Europe North America -8% 4% 4% % % % % Allocation Strategic allocation Diff -3% % 7% Slide 7

8 Return Equity Risk and Return Estimates Slide 8 % EM China 9% 8% Europe LatAm DM Sweden 7% Japan 6% US 5% 4% 3% % % % 5% % 5% % 5% 3% Risk Source: SEB

9 Summary Decision variables Macro and Markets Market Indicators Asset Class and Sector Views Risk Environment

10 Change in positive/negative Positive/Negative House View Committee - The macroeconomic outlook remains the primary factor behind the overweight to risk - The ISM and Consumer Confidence readings from February increases our conviction in that 8 economic growth will be strong - The negative factors of later months have generally become less important and less negative - Valuations have moderated significantly due to both upward revisions of EPS estimates and falling equity prices - While we do not expect multiple expansion (which would bring us back to the levels of the last 4 years) we do not foresee multiple contraction either - We think that the new economic regime has largely been discounted - Positioning and sentiment have eased/become less stretched over the past month - Survey data points towards less aggressive positioning among institutional investors and leveraged upside positions have been decreased - Politics have fluctuated between being a drag and a boon for global equity markets over the last couple of quarters - As tax reform is (temporally) out of focus and talks about a global trade war is on the rise politics as a factor has now turned negative - While we view politics as a negative we await to act upon the trade war discussions until we see the impact and the details of specific tariffs Slide Macro remains the primary factor behind the overweight to risk. Central banks and politics are the largest drags for risk utilization Valuations Sentiment Earnings Politics Macro Central Banks Positioning Importance Source: SEB Politics have increased in importance and has become more negative. This as the potential for a trade war is now catching focus Sentiment Valuations Macro Positioning Earnings Central Banks Politics Change in importance Source: SEB

11 Summary Decision variables Macro and Markets Market Indicators Asset Class and Sector Views Risk Environment

12 Developments in the Markets - Equity markets have been in turmoil since the last House View meeting of early February - The equity markets have gone from being negatively affected by unwinding of short volatility positions to being forced to discount the likelihood of a global trade war - At the same time the market has been in a transition period from a pure growth driven regime into one in which rising inflation and more hawkish central banks also have to be discounted - While the market in early March narrowed in on the correction lows the volatility markets have calmed down from the first weeks of February - Spot VIX have fallen below and even longer dated contracts have fallen back slightly - This as market positioning for falling volatility has eased greatly - As Powell's first congressional testimony was largely upbeat on the outlook for the US economy the market pricing of the rate hike cycle tightened - The market is now largely in line with the FEDs own estimate for 8 with 3 hikes; up from. hikes early 8 - However the market is still only pricing in.5 hikes for 9 which is still significantly below the FEDs projection of 3 - The repricing of the rate hike cycle has led to an upward move in longer dated US yields - Putting downward pressure on equity valuations The market is now almost in line with the FED on 3 hikes for 8; up from a market pricing of. early 8. Source: SEB The repricing of the FED and the strong macro data of last month led to a parallel shift upwards of the US yield curve. Slide

13 Economy Developed Markets - Despite the turmoil in financial markets macro has remained strong for Developed Markets - The US labour market continues to look strong although signs of shortages are building up - Initial Jobless Claims have fallen to the lowest levels since Employment components of the PMIs remains at high levels - Forecasted compensation plans are rising in the most important PMIs - Both Michigan and Conference Board consumer confidence remains at levels last seen in the early s - With respondents indicating that the availability of jobs is on the rise - ISM Manufacturing surprised on the upside and rose against the print of last month - Going against consensus which was looking for a slight decline - The strong ISMs are now pointing towards US GDP growth in the vicinity of 5% - That estimate looks exaggerated given the tightness of the labour market but is fairly inline with real-time estimates for Q - European macro momentum moderated slightly in February - The stronger EUR is hurting the export sector of Germany and France The economy weighted ISM gathered strength in February. On a headline index it is pointing towards US GDP growth of 5%. Real-time estimates for US GDP points towards Q growth in the vicinity of 4%. Slide 3

14 Economy Asia and Emerging Markets - EM PMIs moderated in February - Going against the macro strength of Developed Markets - Chinese PMIs were mixed with Markits gaining while Caixin fell back - Driven by a slowdown in new export orders - A slowdown which is contrasting the rise in EM trade over the past couple of months - The slowdown in the Caixin PMI should be seen in a broader context as Chinese GDP growth remains strong - With the Li Keqiang index pointing towards a current GDP growth in excess of 7.5% - EM inflation rates remain low as strong EM FX has suppressed import prices - The low EM inflation rates have supported further rate cuts in Brazil and Russia - Both countries are finally exiting the taper tantrum and commodity correction induced recessions - The picture for EM trade became more mixed over February - Korean imports slowed to 3.4% while Chinese export and import orders rose significantly - Chinese exports are now growing at the fastest sustained pace since mid 4 EM PMIs moderated in February but remain (in general) in expansionary territory. EM inflation remains at low levels. This has supported the monetary stimulus which we have seen for Brazil and Russia. Slide 4

15 Summary Decision variables Macro and Markets Market Indicators Asset Class and Sector Views Risk Environment

16 Level Momentum Surprise House View US surprise indicator - US macro surprised on the upside post the last House View meeting - Consumer confidence, ISM Manufacturing, and Initial Jobless Claims are the primary drivers behind the aggregated positive surprise - Consensus was looking for a weakness in all three components - Primarily due to the strong labour market momentum has remained positive - For example has Initial Jobless Claims fallen to the lowest levels since For soft data in the US the level of macro remains very high - Any further gains will have to come from hard data US macro surprises have risen since the last House View. Not because macro has risen significantly but because consensus was looking for weakness M MA M MA -.5 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr.6.3 The level of US macro remains very high. As momentum is largely flat the index has not moved in either direction. 5 Macro data level Macro momentum remains largely flat. It implies that data has neither gained nor fallen..5 3M MA M MA Q3-5 Q4-5 Q-6 Q-6 Q3-6 Q4-6 Q-7 Q-7 Q3-7 Q4-7 Q-8 - Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr Slide 6

17 Level Momentum Surprise House View EU surprise indicator - European macro has surprised slightly on the downside over the last month - Markit PMIs, ZEW, and consumer confidence indicators have all fallen below market expectations - The weakness has been most pronounced for France - Market expectations were for leading indicators to remain at current levels so the impact on macro momentum has only been slight - The most positive momentum in Europe still comes from Spain - As we have highlighted previously the level of EU macro is so high that we do not expect to see further acceleration European macro surprises have fallen to on a month horizon. This as we saw a range of negative surprises in the European PMIs M MA M MA - Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr.4. The level of EU macro remains at extremely elevated levels. We do not expect further gains in soft data. 8 6 Macro data level European macro momentum remains largely flat; still positive on a 3 month horizon..5 3M MA M MA Q3-5 Q4-5 Q-6 Q-6 Q3-6 Q4-6 Q-7 Q-7 Q3-7 Q4-7 Q Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr Slide 7

18 Contribution to surprise Contribution to surprise Contribution to surprise Contribution to surprise House View macro surprise contributions Global hard data Contribution to 3 month surprise Global soft data Contribution to 3 month surprise Consumer Housing Industrial Labour 4 3 Consumer Housing PMI -5 - Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar EU Contribution to 3 month surprise US Contribution to 3 month surprise 4 3 Consumer Industrial PMI 5 5 Consumer Housing Industrial Labour PMI 5 - Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar -5 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Slide 8

19 Contribution to momentum Contribution to momentum Contribution to momentum Contribution to momentum House View macro momentum contributions Global hard data Contribution to 3 month momentum Global soft data Contribution to 3 month momentum Consumer Housing Industrial Labour.6.4 Consumer Housing PMI Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar -. Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar EU Contribution to 3 month momentum US Contribution to 3 month momentum.6.4. Consumer Industrial PMI Consumer Housing Industrial Labour PMI Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar -.4 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Slide 9

20 Summary Decision variables Macro and Markets Market Indicators Asset Class and Sector Views Risk Environment

21 Developed Market Equities M Outlook - Developed Market equities will deliver a positive return over the coming months - The market transition into a regime dominated by both growth and inflation implies that valuations will be at lower levels than those seen over the past 4 years - I.e. we are not expecting to see equity returns being supported by multiple expansion - Positive returns will be generated mainly by earnings growth - We forecast EPS growth for MSCI World around % (local currency) - Driven by margin expansion and strong topline growth - Tax reform in the US dominating negative impact from rising real rates and wages - Excess production capacity in Europe will ensure margin expansion as topline grows - The room for upward revisions to EPS estimates is limited - The upward revisions following the US tax reform has largely exhausted the potential for further revisions - I.e. the bottom-up implied EPS growth is what we expect to materialize Topline growth has been the primary driver for EPS growth in the US. As the tax reform starts to affect earnings we expect margins to once more give support The macro environment remains highly supportive for equities. ISM is pointing towards ~3% growth in US equities. Slide

22 Emerging Market Equities M Outlook - We expect that Emerging Market equities will deliver a return in excess of Developed Market equities - In contrast to Developed Market equities we are expecting both strong earnings growth and multiple expansion - Several factors are supportive for Emerging Market equities - Emerging Market is trading at a historically large discount to Developed Market equities - The premium by which EM is trading is in our view driven by the political uncertainty of later years and because investors shunned the asset class during We expect to see upward convergence of the sector adjusted PE for EM equities over the next couple of years - Global trade is rising strongly at the moment - We believe this will boost EM earnings as it has done in the past - We await to see the details of the US tariffs until we change our structural view on global trade There remain room for multiple expansion in EM equities. EM growth is set to accelerate further in 8. Slide

23 High Yield Bonds M Outlook - We expect that global High Yield bonds will outperform Investment Grade and Government bonds over the coming months - But the absolute return will be low and the asset class will underperform equities - The upside is very limited to our strong growth environment - Structural factors which historically have been supportive for the asset class are still in place - The growth outlook remains stable and the likelihood for a recession in 8 is very low - The latter is our primary argument as to why we expect High Yield bonds to outperform - Expectations to gradually rising core government bond yields will continue to drive investors into less rate sensitive asset classes; such as High Yield - Credit conditions are being loosened in both Europe and the US - Note that this is a reversal of the trend which we saw for 6 as a whole - Free cash flows are improving rapidly at the moment - The primary risk for the High Yield space is rising financing costs - This as leverage within the High Yield space has risen over the last couple of years - However we do not expect this to be a major risk factor for the coming 6- months Spread to worst for US High Yield is now at decade lows. The sub bps premium does not in our view compensate for the credit and liquidity risk. Slide 3

24 Emerging Market Debt M Outlook - We expect Emerging Market debt to deliver a return in excess of DM government bonds, Investment Grade and High Yield for the coming months - A return supported by both stronger EM FX against the USD and higher carry - We expect EM FX and EM rates to remain resilient to FED rate hikes following the current projection - Led by China we have seen a broad based revival in EM growth - We believe this revival is more stable than those of later years given the regional breadth and the uptick in global trade - As EM growth has gained momentum of its own we do not expect to see a negative impact on EM FX from rising US policy rates - Assuming a rate hike path such as predicted by the FED - Low EM inflation reduces the likelihood that EM countries will be forced to hike in tandem with the FED - Spreads in EM have fallen significantly and the return potential from further spread compression is low - We believe the bulk of EMD LC performance will come from FX appreciation - The main risk to Emerging Market debt is political risks - There remain a lack of structural reforms but we do not expect it to generate a correction while growth is strong Low EM inflation generates a scenario in which US rates can edge higher (due to strong growth) without denting EM FX. We see most value in EMD Local currency. We expect the majority of future return will come from FX appreciation rather than spread compression. Slide 4

25 Contribtion to score Energy IT Industrials Materials Financials TC Health Care Consumer D Consumer S Utilities Sector overview Sector UW N OW House View Sector Quant Score Financials Consumer Stables Consumer Discretionary UW UW OW Sentiment EPS Valuation Macro Momentum Energy N Industrials OW Telecommunication Materials Health Care N N N Info Tech Utilities UW OW House View Sector Quant Factor Sector Sentiment EPS Valuation Macro Momentum Financials NEG NEG NEG POS POS Materials POS POS POS NEG POS Industrials NEG POS NEG POS POS Consumer D NEG POS NEG POS POS Consumer S POS NEG POS POS NEG Health Care POS NEG NEG POS NEG Energy POS POS POS NEG POS IT NEG POS NEG POS POS TC NEG NEG POS NEG NEG Utilities POS NEG POS NEG NEG Slide 5

26 Contribtion to score M Forward PE Standardized PE Financials - Overweight - We expect Financials to benefit from the normalization of monetary policy - As the FED continues to hike rates we expect to see earnings estimates for financials turning increasingly positive - This as net interest margins will continue to rise - As the US yield curve has stopped flattening (by longer dated bonds moving higher) the beta towards policy normalization have increased - 8 consensus forecast for EPS growth has been lifted to % - This is inline with our top-down model - Note that analysts have revised the 8 EPS estimate higher from 9% since the beginning of the year Standardized relative valuation Contribution to House View Sector Score Absolute valuations Sentiment EPS Valuation Macro Momentum Financials Market Slide 6

27 Contribtion to score M Forward PE Standardized PE Materials - Neutral - We reduce the allocation to materials to a neutral (from an overweight) - Momentum has declined for the sector as EPS revisions have been slighter than those of the broad market - On a discretionary basis we see uncertainty rising from the looming prospects of a global trade war and from the failed pickup in Chinese growth - We expect that any further slowdown in Chinese demand (while not our main scenario) will lead to significant downward revisions of EPS estimates Standardized relative valuation Contribution to House View Sector Score Absolute valuations 9 3 Sentiment EPS Valuation Macro Momentum Materials Market Slide 7

28 Contribtion to score M Forward PE Standardized PE Industrials Overweight - We increase the overweight to industrials further - The strength in US PMIs over February has increased our conviction in the manufacturing recovery and as such in the sector - As the sector have lost its valuation premium towards the broad market during the correction we increase the overweight - Despite weak price performance EPS estimates for industrials remain highly positive - 8 bottom-up implied EPS growth is now at.5% - We think sentiment is too negative for the sector as the market has been looking for a manufacturing slowdown - Providing the current opportunity to increase our overweight Standardized relative valuation Contribution to House View Sector Score Absolute valuations 3 Sentiment EPS Valuation Macro Momentum Industrials Market Slide 8

29 Contribtion to score M Forward PE Standardized PE Consumer Discretionary - Underweight - We introduce an underweight to Consumer Discretionary - While momentum and macro remains positive the sector is constrained by trading at elevated levels compared to its historical premium - Consumer Discretionary are also relatively highly exposed to rising wages - As labour market shortages will continue to build for the US we expect this to erode margins and hamper the upside potential for upward revisions - Even though the sector is set to experience strong topline growth given the high levels of consumer confidence - On a technical level we note that sentiment has turned negative for the first time since 6 - Given tactical support to enter into an underweight Contribution to House View Sector Score Standardized relative valuation Absolute valuations Sentiment EPS Valuation Macro Momentum Consumer D Market Slide 9

30 Contribtion to score M Forward PE Standardized PE Consumer Staples - Underweight - As we believe all bond proxies should underperform on a relative basis as yields rise we underweight Consumer Staples - Although valuations are cheap we expect the sector to underperform as the macroeconomic environment continues to gather pace - The sector is trading more than standard deviations cheap compared to its recent history - As for Consumer Discretionary we expect the sector to face increasing margin pressures from rising labour costs - The underweight is primarily motivated by the defensive nature of the asset class Standardized relative valuation Contribution to House View Sector Score Absolute valuations 3 Sentiment EPS Valuation Macro Momentum Consumer S Market Slide 3

31 Contribtion to score M Forward PE Standardized PE Health Care - Underweight - We maintain an underweight to Health Care - The strong performance over the last couple of months has eradicated the valuation argument which came into place following the election of Trump and the republican majority in the senate - As it was speculated that the Affordable Care Act and increased price scrutiny would challenge the rise in earnings of later years - The sector has historically underperformed in a rising yield and inflation environment - Making it hard to build a strategic case for the sector Standardized relative valuation Contribution to House View Sector Score Absolute valuations 4 3 Sentiment EPS Valuation Macro Momentum Health Care Market Slide 3

32 Contribtion to score M Forward PE Standardized PE Tech - Overweight - We increase tech to an overweight despite the significant premium to which the sector is trading against the broader market - Positive momentum and EPS revisions are dominating expensive relative valuations - Over the last couple of quarters we have seen accelerating earnings momentum which has supported the relative performance of the sector - As we, and the market, are expecting this trend to continue going into the Q earnings season we increase the allocation to an overweight - The recent tax reform increases the likelihood for rising CAPEX in the tech sector which we expect to accelerate the already strong earnings growth Standardized relative valuation Contribution to House View Sector Score Absolute valuations 4 3 Sentiment EPS Valuation Macro Momentum IT Market Slide 3

33 Contribtion to score M Forward PE Standardized PE Telecommunication - Neutral - We are neutral Telecommunication as we believe the recent relative selloff has made the sector relatively cheap - As for Consumer Staples the sector is in oversold territory and is trading close to standard deviation on the cheap side compared to its recent history - Although we are neutral on the sector we note that earnings revisions are a negative drag for the sector and we stress that its bond like proxy characteristics should cause it to underperform in the current strong macroeconomic environment - We are therefore inclined to sell into strength that eradicates the recent valuation cap Standardized relative valuation Contribution to House View Sector Score Absolute valuations Sentiment EPS Valuation Macro Momentum TC Market Slide 33

34 Contribtion to score M Forward PE Standardized PE Utilities - Underweight - We are underweight utilities as we expect the sector to underperform due to its bond like characteristics once yields starts to rise - Despite the fact that the sector is trading at relatively cheap levels - Note that momentum, relative earnings revisions, and macro are all supporting our negative stance - More than any other sector we expect utilities to underperform in the new growth+inflation scenario - While rates have moved higher over the last couple of quarters we do not expect the trend to settle as labour market shortages in the US becomes ever more pressing Standardized relative valuation Contribution to House View Sector Score Absolute valuations Sentiment EPS Valuation Macro Momentum Utilities Market Slide 34

35 Summary Decision variables Macro and Markets Market Indicators Asset Class and Sector Views Risk Environment

36 Risk Environment - We change our primary risk scenario from one in which inflation surprises on the upside to one in which macroeconomic momentum starts to falter - The change of risk scenario reflects our view that we have entered a new regime in which growth and inflation both are of importance - Compared to the one of 6-7 where focus was solely on growth - The market is in our view developing as would be expected in the later stages of the business cycle - Rates, inflation, and volatility all rising - In such a scenario we believe that equities will also rise as long as growth remains strong - As we are accepting that inflation pressures will not ease from here we are therefore left with a scenario in which equities will only be able to sustain gains with positive macro - Therefore the focus has changed from inflation (which is here and which will rise) to macro - The transition period from the old low inflation regime to the new rising inflation regime was our old risk scenario and has largely come about as we expected it would - Although we with our +5 risk utilization did not time the change - The risk from a global trade war largely plays into our risk scenario - Falling global trade will challenge the global recovery and could as such force our risk scenario to materialize While equities is a leading indicator of GDP growth, inflation is a lagging variable. Inflation is here to stay but says nothing about future growth. Recession risk indicators are close to the lowest levels since the financial crisis. We are still far from a 8 redux in terms of growth. Slide 36

37 Disclaimer This report has been compiled by SEB Group to provide background information only and is directed towards institutional investors. The material is not intended for distribution in the United States of America or to persons resident in the United States of America, so called US persons, and any such distribution may be unlawful. Although the content is based on sources judged to be reliable, SEB will not be liable for any omissions or inaccuracies, or for any loss whatsoever which arises from reliance on it. If investment research is referred to, you should if possible read the full report and the disclosures contained within it, or read the disclosures relating to specific companies. Information relating to taxes may become outdated and may not fit your individual circumstances. Investment products produce a return linked to risk. Their value may fall as well as rise, and historic returns are no guarantee for future returns; in some cases, losses can exceed the initial amount invested. You alone are responsible for your investment decisions and you should always obtain detailed information before taking them. If necessary, you should seek advice tailored to your individual circumstances from your SEB advisor. This material is not directed towards persons whose participation would require additional prospectuses, registrations or other measures than what follows under Swedish law. It is the duty of each and every one to observe such restrictions. The material may not be distributed in or to a country where the above mentioned measures are required or would contradict the regulations in that country. Therefore, the material is not directed towards natural or legal persons domiciled in the United States of America or any other country where publication or provision of the material is unlawful or in conflict with local applicable laws. Slide 37

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