SEB House View 04 September 2018

Transcription

1 SEB House View September 8

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

3 Summary - We remain neutral in risk utilization as we see no clear trend in macro momentum and as we see the number of potential risks as being elevated - The strong equity performance (driven by multiple expansion) of August has in our view little to no support in the sense that no macro, micro, or political data point/development has significantly changed the economic outlook - Despite the fact that we see little support for the rally we do not initiate an underweight - Forward looking valuations do not look menacing and we respect the potential that the strong momentum in itself could extend the current rally - The list of potential negatives which motivated the August reduction in risk utilization still exist - We especially fear that the trade war (US vs. China version) will come back into focus for the markets and push down equity prices - We see the risk of a moderation in US macro as elevated - Anecdotal evidence of the PMIs continues to indicate that the new tariffs are having a real impact on order flows - We do not have an outright negative view on the future development of US PMIs but we do not want to be exposed to the risk of a setback herein at this moment - Despite our neutral tactical stance we stress that the month outlook remains favorable for equities - We see no reason as to why we should not expect strong sales growth for equities and we expect forward multiples to be stable 5% The speedometer controls to what extent the portfolios should utilize their risk budgets. It is connected to the model portfolio (page ) 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 allocation of mid-august - Given the neutral stance in risk utilization the largest contribution to tracking error comes from the (small) overweight to equities against High Yield bonds - A position which reflects our view that we are late in the cycle (more negative for credits than for equities) and that credits in our view are trading more expensive than equities - We stress that the overall neutral positioning is a function of a cautious tactical view and not a negative strategic view - It is a reflection of a market which is too complacent about the trade war, has reverted to all time highs, and for which there is a lack of positive tactical triggers to drive the market higher - The combination making the return distribution of equities increasingly negatively skewed - Strategically we expect that equities will deliver a positive return, in excess of all fixed income alternatives, over the coming months - We expect an EPS growth over the coming months of % for MSCI World - We expect MSCI World to trade with a 5.X handle measured on M FPE; albeit with risk being skewed to the downside - As we are now trading at 5.5 multiple expansion should give no more than 3% return contribution in isolation - We see a slightly larger downside but would not expect us to go below.5 for MSCI World in a risk off scenario Slide Model Portfolio Government Bonds Equities Investment Grade High Yield Bonds Emerging Market Debt Commodities Cash -6% -3% 6% % 6% 3% 3% % 5% 5% % % % % 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. % % % % 7% 7% 5% Allocation Strategic allocation Diff

5 Regional equity model portfolio - We are neutral on regions - Given the heightened uncertainty regarding the impact of the trade war we choose to remain on the sidelines - The M forward valuation on Emerging Markets equities has fallen significantly - The region is now trading at. point discount to MSCI World -.53 if sector adjusted - Despite the increased discount compared to early 8 we note that it (the discount) is still in the vicinity of the average from 3 till now - With a maximum discount of 5. achieved in 5; corresponding to a pure multiple driven underperformance potential of 5% from current levels - European equities are also relatively cheap compared to US - The increased discount for 8 can be explained by the strong upward revision to US earnings compared with the stable development for European earnings - Given that the discount comes largely from pure earnings underperformance we do not think that European equities are an obvious buy compared to US equities as of writing - Furthermore we expect European equities to fall more than US equities in a broad risk off scenario - Similar to what we saw back in the early part of 8 Regional equity positioning EM Ex. Asia EM Asia East Asia ex. Japan Sweden Japan Europe North America 5% 5% % 8% 8% % 3% 3% % % % % 8% 8% % % % % % Allocation Strategic allocation Diff 55% 55% Strategic allocation follows MSCI All Country Slide 5

6 Expected return, % Expected return, % Expected return, % Equity Risk and Return Estimates month forward looking return expectations month forward looking return expectations EM Equities Swedish equities DM Equities M expected risk and returns EMD LC High Yield Commodities Investment Grade Money Market Fixed Income Source: SEB -M Now DM Equities 6.7% Fixed Income -.3% Source: SEB EM Equities ( 9.%/.9%) Swedish equities ( 8.5%/.9%) DM Equities ( 6.7%/.6%) EMD LC ( 5.%/.6%) High Yield (.9%/.9%) Investment Grade (.6%/.9%) Commodities (.8%/.%) Money Market (-.5%/.%) Fixed Income (-.3%/.5%) Slide Expected risk, % Source: SEB

7 Active weight, % Active weight, % Active weight, % Active weight, % Historical House View Allocation Equities High Yield % % Emerging Market Debt 8 Fixed Income* % - - % Slide 7 * The -5 combined overweight to equities and fixed income was financed by an underweight to Investment Grade, Commodities, and EMD.

8 Risk utilization Expected outperformance BPS Expected return, % Expected returns - The M expected return estimate of the House View model portfolio is 3.% - The expected return is below that of the strategic portfolio given the underweight to commodities and High Yield - Both of which are expected to deliver a higher return than fixed income over the coming months - The low expected relative return (model portfolio return strategic portfolio return) illustrates that the current positioning is tactical - We expect to be (on average) overweight risk over the coming months Absolute expected returns BM: 3.% PF: 3.% Risk utilization since inception 9 Relative expected return* % Relative: - bps Slide 8 * Shows the M forward expected outperformance of the model portfolio compared to the strategic allocation.

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

10 Change in positive/negative Positive/Negative House View decision variables - Positioning is in our view the factor most likely to support further gains in equities - Although the rally over August (in our view) has been driven by a repositioning into equities of buy-side TAA money we still view the aggregated consensus as being relatively pessimistic - Various buy-side surveys are indicating that consensus is less optimistic about the economic and financial outlook than what it was just -3 months ago - We think further price gains and/or a reacceleration in macro could force TAA money back into equity overweighs; given that the consensus is looking for neither of these two things to happen - We note that the equity beta of CTAs is low and we see potential for this investor type to force the rally further along - Despite the potential for positioning to drive equities higher we do not view the factor as strong enough for us to have an overweight to risk - The neutral stance of SEB House View is motivated by the uncertainty around the direction of tactical macro indicators and the heightened political risks - We expect that political shocks will have an outsized effect on equities (compared to the past -3 years) given the moderation in macro which we have seen over 8 - So while macro still remains positive as a factor (barely) and still remains important the relatively long list of political risks are at the moment skewing the return profile of equities enough for us to be at neutral in risk utilization Slide Sentiment and positioning are the primary positive factors at the moment. Politics and central banks are the primary negative factors Valuations Earnings Sentiment Central Banks Politics Positioning Macro 6 8 Importance Source: SEB We see macro as having become slightly more positive over August given the strong IFO and strong US consumer confidence Politics Earnings Valuations Macro Sentiment Positioning Central Banks Change in importance Source: SEB

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

12 Developments in the Markets - Global equity markets has rallied since the last House View meeting - To a very large extent driven by US equities - European and Japanese equities continues to hover around % in YTD return (measured in EUR) and Stoxx5 is up % since the last House View meeting - We see no obvious macro, micro, or political driver behind the rally in US equities - The Q earnings season has largely come to an end and as such we have seen few EPS revisions over the second half of August - Momentum for global macro has been hovering around zero over August - With gains in European data being matched by somewhat weaker data coming out of the US - Outside of the deal between Mexico and the US there was no significant breakthrough in trade negotiations - I.e. there was no political event which in isolation validated the strong equity market performance of August - The strong performance of equities seems in large part driven by flows - Buy-side positioning turned slightly more positive over August - Implied positioning indicators (such as rolling equity betas) suggest that especially risk parity funds and equity L/S funds were on the margin buying into equities While the beta of risk parity funds have increased over August it has fallen for CTA funds. We think flows in general explains the bulk of the rise in equities over August. The rally in equities over August was mostly isolated to the US. This lifted US equity valuations but did little to move that of MSCI World. We expect a 5.X handle for 8 Slide

13 Economy Developed Markets - European macro was on aggregate better over August than what it has been for 8 as a whole - Germany led the advance with a strong IFO reading and solid service PMIs - For Germany the strength in macro is still isolated to soft data (surveys) - Hard data such as production and factory orders continues to look bleak as a consequence of the European wide slowdown over 8 - US macro was more mixed over August than that of Europe - Regional PMIs did not follow the ISMs lower - On the margin it therefore looks that the negative impact of the trade war is not multiplying - Housing data for the US showed weakness with a fall in housing starts and building permits - The moderation was confirmed by a weak NAHB although we note that the level of this is significantly higher than what the number of housing starts would suggest - On the positive side we saw a significant reacceleration in US consumer confidence - Conference Board is now at decade high levels - Indicating very strong consumption growth of H 8 - Indicating a very tight US labour market - Real time GDP estimates remains very positive - Although we are once more seeing divergence between the measures of Atlanta FED and NY FED Conference Board Consumer Confidence rose to the highest levels since the early s. Atlanta FED GDPNow is indicating very strong growth momentum going into Q3. Slide 3

14 Summary Decision variables Macro and Markets Market Indicators In Focus Asset Class and Sector Views Risk Environment

15 Factory Orders Leading Indicator MoM Conference Board Co... NFIB IJC Chigaco FED Empire ISM Manufacturing Durable Goods NAHB FED Labor Market Con Personal Income Existing Home Sales Non-Farm Michigan Consumer Building Permits Philly FED Kansas FED Personal Spending ISM Non-Manufacturi... New Home Sales Contribution to surprise Housing Starts SEB House View - US surprise indicator - US macro surprises are still on aggregate negative - The level is however so close to the zero mark that one should be careful about interpreting too much on the sign - The indicator illustrates that macro surprises have been in a falling trend since late December 7 - Diverging from the development in US and global equities - We are seeing positive surprises in survey data - Especially for the consumer - PMIs remains a mixed picture with the regional versions being on aggregate flat while the ISMs declined in August - While the correlation between equities and surprises were high from May till late July it has now broken down - The latest rally in equities can as such not be explained by macro US macro surprises are in negative territory. The level has however improved and we are off the lows of late August. 3 - Max: 7--3 Min: 8-8- Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct US equities has not traded on the back of macro surprises over the past month. Consumer confidence, employment data, and regional PMIs are the indicators which are surprising on the upside at the moment. Housing is negative..5 3 SP5.5 - Surprise Slide 5 Dec Jan Feb Mar Apr May Jun Jul Aug Sep *Surprises vs. rolling 3 month return of SP5 -

16 NFIB Retail Sales Durable Goods Factory Orders Deviation from long term level Philly FED ISM Manufacturin... Conference Board Cons ISM Manufacturing ISM Manufacturing New Order... Personal Income ISM Non-Manufacturing Construction Contribution to momentum Conference Board Cons Personal Income NFIB Retail Sales Construction Durable Goods ISM Manufacturing Factory Orders Philly FED ISM Non-Manufacturing SEB House View - US macro monitor Level of US macro US macro momentum.5 Max: Max: Min: Q-6 Q3-6 Q-6 Q-7 Q-7 Q3-7 Q-7 Q-8 Q-8 Q3-8 Q-8 -. Min: Q-6 Q3-6 Q-6 Q-7 Q-7 Q3-7 Q-7 Q-8 Q-8 Q3-8 Q-8 US macro indicators deviation from level of 5 last years Contribution to US macro momentum Slide 6

17 IFO Business DE Production Contribution to surprise DE Serv Markit IFO Expect IFO Current FR Serv Markit Markit EU Service DE Manu Markit ZEW Expectation Consumer Conf. IT Consumer Conf. FR Consumer Conf IT Manu Markit Markit EU Man FR Manu Markit ZEW Current Spain Manu Markit IT Business Conf. DE Retail Sales GFK Consumer Conf. Spain Serv Markit Spain Production DE Factory Orders SEB House View - EU surprise indicator - European macro has turned positive for the first time since March 8 - Positive surprises are in large part driven by the IFO and French and German service PMIs - Hard data still remains lackluster - Factory orders from Germany and Spanish Industrial production both fell below expectations - The level of European macro (slide 9) has now closed in on the moving 5 year average - At the same time as macro surprises has turned positive momentum is also finally starting to enter positive territory - In large part driven by strong PMIs The correlation between equities and surprises has picked up in Europe. 3 European macro has turned positive for the first time since March 8. Max: Min: Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Soft data from Germany is driving the positive surprises..5 Stoxx6 Surprise Slide 7 Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct *Surprises vs. rolling 3 month return of Stoxx 6

18 Deviation from long term level IFO Current IFO Business IT Consumer Conf. Consumer Conf. GFK Consumer Conf. ZEW Current IFO Expect FR Consumer Conf IT Business Conf. DE Serv Markit FR Serv Markit FR Manu Markit DE Manu Markit Markit EU Service Markit EU Man DE Retail Sales Spain Manu Markit DE Production Spain Production IT Manu Markit IFO Expect DE Serv Markit IFO Business Markit EU Service ZEW Expectation DE Factory Orders Spain Serv Markit FR Serv Markit IFO Current DE Production ZEW Expectation IT Consumer Conf. GFK Consumer Conf. FR Consumer Conf ZEW Current IT Business Conf. Consumer Conf. IT Manu Markit FR Manu Markit DE Manu Markit Markit EU Man Spain Manu Markit DE Factory Orders Spain Production Contribution to momentum Spain Serv Markit DE Retail Sales SEB House View EU macro monitor Level of EU macro EU macro momentum.5 Max: Max: Min: 6--5 Q-6 Q3-6 Q-6 Q-7 Q-7 Q3-7 Q-7 Q-8 Q-8 Q Min: Q-6 Q3-6 Q-6 Q-7 Q-7 Q3-7 Q-7 Q-8 Q-8 Q3-8 Q-8 EU macro indicators deviation from level of last 5 years Contribution to EU macro momentum Slide 8 *Surprises vs. rolling 3 month return of Stoxx 6

19 Summary Decision variables Macro and Markets Market Indicators In Focus Asset Class and Sector Views Risk Environment

20 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 years - I.e. we are not expecting to see equity returns being supported by significant multiple expansion that would bring us back up to the levels achieved in late 7 - We expect that MSCI World will trade with a 5.X handle although we see the risk to this view as being skewed to the downside - Positive returns will be generated mainly by earnings growth - We forecast M forward EPS growth for MSCI World around % (local currency) - Driven by strong topline growth - Note that this estimate is in line with bottom-up consensus estimates - Despite the setback in tactical macro we stress that the economic outlook remains strong and that we view the likelihood for a correction in the next months as low - We think that this environment will remain strong enough to support the earnings growth that lies in expectations We expect that global and US equities will continue to go higher due to strong earnings. The time of multiple expansion is in our view behind us. Following the strong earnings growth and the modest price gains which we have seen valuations fall below the average of the last couple of years. Slide

21 Emerging Market Equities M Outlook - We expect that Emerging Market equities will deliver a return in excess of Developed Market equities over the next months - But with a significantly higher volatility - In contrast to Developed Market equities we are expecting both strong earnings growth and multiple expansion - The latter has in our view fallen too much over the latest rout and is in a month perspective looking attractive - EM equities are in our view underowned and underloved - The correction on the back of the Turkey crisis is in our view overdone - Especially given that the universe is more tilted towards EM Asia and EM LatAm - We expect that the trade war on a month horizon will slow down and that it will drive multiples higher - Despite the positive structural factors we see a risk that the FX component will come under pressure as we enter H - This as we see the likelihood for the FED to be more aggressive in the communication around the future rate hike cycle as being on the rise There remains room for multiple expansion in EM equities. We expect EM equities to gain support from rising earnings. Bottom-up consensus is looking for 6% earnings growth in 8. Slide

22 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 high USD hedging costs makes the strongest tactical counter argument for US High Yield - A EUR (or SEK) based investor receives only a 5bps spread to worst After correcting for hedging costs the spread to worst stands at 5 bps for US High Yield. This is in our view too low given the rising rates environment. Slide

23 Emerging Market Debt M Outlook - We still expect Emerging Market debt to deliver a positive return over the coming months - But we do see the risk as being highly elevated and the outlook to be very much depended on the political and monetary development in a select range of countries - Brazil, Turkey, and South Africa - Without stabilization in Turkey it will be hard for the aggregated index to deliver a positive return - Given that the crisis has now gained a life of its own we see it as close to outside the control of Turkey as to whether it will stop here - In our view we expect that external funding is now needed - Either IMF and/or Russia/China - We are concerned about the deterioration which we are seeing in current account deficits for the universe as a whole - Especially the latest decline for South Africa which follows a long period of strength - Structurally the picture for EM still remains fairly positive outside of politics - The broad GBI-EM weighted inflation rate is low and the scope for further broad EM monetary stimulus is still in place - Although we do not expect to see this until we have stabilization in EM FX We are seeing broad based declines in current account deficits for the EM universe. Outside of Turkey we are concerned about South Africa The lack of policy action in Turkey has gone so far that we expect external funding is now needed to stop the rout. Slide 3

24 Contribtion to score Industrials IT Energy Consumer D Materials Health Care Financials TC Utilities Consumer S Sector overview Sector UW N OW House View Sector Quant Score Financials Consumer Staples Consumer Discretionary Energy Industrials Telecommunication Materials UW N N N N OW OW Sentiment EPS Valuation Macro Momentum Health Care N Info Tech Utilities (X) Indicates last months positioning. UW OW House View Sector Quant Factor Sector Sentiment EPS Valuation Macro Momentum Financials POS POS POS NEG NEG Materials POS NEG POS NEG NEG Industrials POS POS POS POS NEG Consumer D NEG POS NEG POS POS Consumer S NEG NEG NEG NEG NEG Health Care NEG POS NEG POS POS Energy POS NEG POS POS POS IT NEG POS NEG POS POS TC NEG POS POS NEG NEG Slide Utilities POS NEG NEG POS POS

25 Contribtion to score M Forward PE Standardized PE Financials - Overweight - We expect Financials to benefit from the normalization of monetary policy - Both due to a normalization in the term premium and due to increased market volatility which we expect to follow from higher rates in isolation - 8 consensus forecast for EPS growth has been lifted to % - This is inline with our top-down model - We note that analysts have revised the 8 EPS estimate higher from 9% since the beginning of the year - Outside of momentum this is one of the key supportive factors in our quantitative scoring model Standardized relative valuation Contribution to House View Sector Score Absolute valuations 9 5 Sentiment EPS Valuation 3 Macro Momentum Financials Market Slide 5

26 Contribtion to score M Forward PE Standardized PE Materials - Overweight - We maintain an overweight to Materials despite the recent underperformance - The sector is now trading at more than standard deviations cheap relative to the broad market - Sentiment is positive (the market is oversold) following the latest rout - We see the underperformance as a consequence of the market pricing in an escalation in the trade war - Materials therefore being one of the only equity pockets that is pricing the trade war Standardized relative valuation Contribution to House View Sector Score Absolute valuations Sentiment EPS Valuation Macro Momentum Materials Market Slide 6

27 Contribtion to score M Forward PE Standardized PE Industrials Neutral - We are neutral industrials despite a high isolated model score - We override the model since we are neutral risk utilization - It is very likely that we will increase the allocation to industrials if we are to increase the risk utilization level - Despite the neutral stance we note that the sector is trading relatively cheap compared to the market - At the same time we are seeing positive EPS revisions and a sentiment being relatively negative - Momentum is the only factor which is negative for industrials Standardized relative valuation Contribution to House View Sector Score Absolute valuations Sentiment EPS Valuation Macro Momentum Industrials Market Slide 7

28 Contribtion to score M Forward PE Standardized PE Consumer Discretionary - Neutral - We are neutral Consumer Discretionary - Despite the high valuations (which led to the underweight being introduced in May) we think that the sector still has room to outperform relative to the market - We at least do not want to be positioned for an underperformance over the coming months where we expect too see heightened volatility - We note that momentum and macro are the primary supportive factors for the sector Standardized relative valuation Contribution to House View Sector Score Absolute valuations Sentiment EPS Valuation Macro Momentum Consumer D Market Slide 8

29 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 are underweight Consumer Staples - Although valuations are cheap we expect the sector to underperform as yields continues to normalize - 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 - We also note that we are increasingly getting momentum and earnings revisions on our side of the argumentation Standardized relative valuation Contribution to House View Sector Score 3 Sentiment EPS Valuation Macro Momentum Absolute valuations Consumer S Market Slide 9

30 Contribtion to score M Forward PE Standardized PE Health Care - Neutral - We are neutral Health Care - The sector has historically underperformed in a rising yield and inflation environment - Making it hard to build a strategic case for the sector - We do not introduce an underweight since all the relative signals for the sector are relatively muted - We do however note that the sector has rebounded over the last couple of months which has brought relative valuations higher - We are therefore getting neared to initiating a short position in the sector Standardized relative valuation Contribution to House View Sector Score Absolute valuations 9 3 Sentiment EPS Valuation Macro Momentum Health Care Market Slide 3

31 Contribtion to score M Forward PE Standardized PE Tech - Overweight - We are overweight tech despite very stretched valuations - 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 - The recent tax reform increases the likelihood for rising CAPEX in the tech sector which we expect to accelerate the already strong earnings growth - This is also slowly starting to be confirmed in earnings Standardized relative valuation Contribution to House View Sector Score Absolute valuations 3 Sentiment EPS Valuation Macro Momentum IT Market Slide 3

32 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 - 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 9 Sentiment 3 EPS Valuation Macro Momentum Utilities Market Slide 3

33 Summary Decision variables Macro and Markets Market Indicators In Focus Asset Class and Sector Views Risk Environment

34 Risk Environment - We see falling global macroeconomic momentum combined with rising US inflation as the main risk scenario - We expect that the FED will continue to reduce its balance sheet and to hike rates at (or above) the current projection - With a very high hurdle (in terms of falling macroeconomic momentum) before they change communication/path - We think that the combination of falling growth momentum and a hawkish FED could put central banks back into focus - A tightening FED in a negative growth scenario will bring forth the market projection for the next recession - Note that the FED funds curve as of early September is pricing in a cut in which we also view as the soft market consensus for when the next big recession will hit - There are two large tactical risk factors which is discounted in our level of risk utilization: - US/China trade war: - The market is in our view too complacent about the discussions - We expect that a resurgence could bring forward valuations down close to, and slightly below, 5 for MSCI World - Implying a ~3-% downside - Turkey: - We fear the sentiment shock (in a weak global growth environment) more than the direct economic and financial links to for example Europe The market is pricing a rate cut in. If the FED continues to hike rates now while macroeconomic momentum remains weak we expect this likelihood to increase. Looking past 99 the end of the rate hike cycle has usually been followed by a recession within months. We expect the same to happen in this cycle. Slide 3

35 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 35