SEB House View 20 January 2021
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SEB House View 20 January 2021
Summary House View factors Macro and Markets Market and Fair Value Indicators In Focus Asset Class and Sector Views
Summary – Start of a new regime
- We stay invested in the market as we remain confident in the Investment Regime
economic recovery in 2021 Our regime-based framework defines the major characteristics of the investment regime
- After an unprecedented 2020, a vaccine rollout is on the way
which indicates that brighter markets are ahead
Supportive
- And with the end of lockdowns now in sight we are not overly Strong
Loose fiscal policy
concerned about temporary weaker service and consumption growth in
data monetary earnings
- Stable and robust industrial data signal confidence in the policy Economic Biden
recovery and will be further supported by expanding Capex presidency
Vaccine
recovery
- But with more positive news already discounted, growth is no
longer a surprise factor and markets are more invested distribution Lockdowns
- However, we note that views of 2021 are shifting upwards Steeper yield vs reopening
curve
- Forecasters are gradually adjusting up their 2021 US GDP
rates – consensus is gradually moving from 4% to 6-7%
- Markets are focused on a couple of things now
- The spread of the virus appears to be initially stabilizing Speedometer
- Lockdowns are generally less restrictive than during spring 2020
- Corporates could see a meaningful bounce as EPS forecasts are 65%
good and Capex is picking up
- Commodities are stronger, which indicates an uptick in activity
- Where we differ from consensus, positively
- Markets probably underestimate the support from monetary
policy – a M2 growth of plus 20% in the US is strong
- The strength in manufacturing and industrial sectors are more
indicative of growth going forward compared to some sectors The speedometer controls to what extent the portfolios should utilize their risk budgets.
that are more hurt by lockdowns It is connected to the model portfolio (page 4) which at all times utilizes its risk budget
- Global trade data and strong data in China is probably a lead in-line with the speedometer. In a very general sense it can be interpreted as equities
indicator and so is the high frequency data that we track on/off (with 50% being neutral).
Slide 3Investment Regime
- Macro will support EPS 2021 as growth is expected to recover Macro •Expansionary PMI:s and strong orders
- Retail sales and production will improve as we have seen •More vaccines and less shutdowns
stronger soft data on US New Orders, industrial employment, •Positive macro surprise indicators
Exports and Imports Economic recovery •Improving consumer confidence
- Spending will be supported by high savings rate, which is •Inflation expectations creep up
positive going forward
Central banks •Dovish FED until 2024
- High-frequency data shows some initial stabilization, which may
signal a lesser effect from shutdowns moving forward •Acceptance of higher CPI data
•Marginally steeper yield curve as
- Central banks hold a continued accommodative monetary policy growth recovers and due to expansive
- FED:s policy keeps rates low for a long time
Accommodative policies
fiscal policies
- Global central banks will continue to be very accommodative
as long as the coronavirus continues •Democrats could pass more fiscal aid
Politics
- Leading to excess liquidity and money supply growth •Risk of higher taxes and regulatory
- With low yields we also expect continued dollar weakness changes may be overstated in the short-
term
- We expect a slightly steeper yield curve as growth recovers and a Supportive fiscal policy •Lockdowns may be lifted as vaccines
Democratic Congress may increase fiscal spending rollout throughout the year
- Which is also a global trend
•Expect sales and profit margins to
- Supportive fiscal policies are the new normal Corporates improve
- With a Democratic control of Congress we can expect further •Valuations will remain historically high
expansionary fiscal policies over the next few months given low yields
Strong growth earnings •High debt levels in corporate structure
- Higher taxes and regulatory changes are not in the cards for the
near term, but needs to be monitored for the long-term will remain and will be monitored
- Corporates: Strong growth in earnings as economy recovers
- Earnings have beaten expected estimates and we can expect Fast rising COVID & Greedy Sector
sales and earnings to improve as the economy recovers yields lockdowns market rotations
- Equity valuations will remain high as interest rates remain low
and strong monetary growth keeps valuations high even as bond
yields recover
Slide 4Asset Allocation
- On the back of a regime that promotes risk-taking we continue to Model Portfolio
favor equities
- We might see a softer trend as markets are slightly strained, but
17%
the basic drivers are unchanged
- The risk premia is now lower than in late 2020
Government Bonds 27%
-10%
- Our House View risk indicator is clear on that point as credit
spreads are now lower, PE multiples higher, and so forth
53%
- We stay short in the government bond market as fiscal support has
increased
Equities 45%
8%
- Bond yields are key in pricing assets as well as investments
- The trend in bond yields is challenging in the long-term, but of
13%
limited concern over the coming months
Investment Grade 13%
- Higher inflation is not a risk within the coming six months 0%
- But thereafter it’s a different discussion as persistent higher PF
inflation would be a real threat to yields and to the market
13%
- As corporate bonds have been a very compelling proposition, we High Yield Bonds 10%
BM
stay overweight in high yield but hold a neutral position in 3%
investment grade Diff
- However, the risk-reward discussion here is more complex going
3%
forward
- Spreads are tighter now, but as we move into a phase with lower
Emerging Market Debt 5%
-2%
return it’s relevant to maintain some credit exposure as a hedge
- Our risk carrying positions are within equities and high yield bonds
1%
- This reflects our outlook that is benign for risk-taking and will
reward corporate risk-taking in all ways
Cash 0%
1%
- The earnings yield on equites compared to bonds remains strong
- EPS forecasts are impressive, although they should be taken Long only portfolio. Yearly VaR(95%) ex. mean between 7% and 21%.No
with a grain of salt 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.
Slide 5Regional equity allocation
- Our regional exposure is a combination of cyclicality, earnings and Regional equity positioning
currency outlook
- For the time being we maintain a balanced view between Europe
and US
5%
- Continued strong growth in the FAANGS balances a potentially a EM Ex. Asia 5%
positive outlook for the more cyclical EU 0%
- US based assets still maintains a strong outlook 10%
- The sector exposure for the region is less cyclical than Europe EM Asia 8%
2%
and the USD is expected to weaken
- But the recent USD weakening may take a breather. 3%
- However, as the process to a stronger global growth environment East Asia ex. Japan 3%
0% PF
is still slow, the strong EPS in US growth companies is still
competitive and attractive in the portfolio 1% BM
- In Europe, the macro trend remains weak apart from the German Sweden 1%
industry that holds up well
0%
Diff
- The region could come into favor if the cycle accelerates due to 6%
its cyclical exposure to banks and industrials Japan 8%
-2%
- Our decision is a wait and see between the US and EZ, as the main
scenario is pro-growth, but the speed is still slow 20%
Europe 20%
- We like Asia and we expect China to outperform both in terms of 0%
currency and equity market
55%
- Strong GDP data and proactive credit policies for financials is North America 55%
positive 0%
- The flow of capital is impressive and relevant with respect to
growth numbers
- Global trade is strong and a leading indicator that is picking up
- In conclusion, the Asian EM marketspace is a good investment in
Benchmark is MSCI All Country
growth and in the next leg we will likely add EM globally
Slide 6Sector allocation
- Our sector strategy reflects out view that the world is gradually Sector positioning
moving to a cyclical phase
- Bond-yields and commodities are leading indicators
- The strategy is to capture a shift to stronger growth – step-by-step
Comm Services -2%
- We maintain an exposure to US growth sectors thru Consumer
Cyclicals as these sectors have excellent fundamentals
- And as long as high monetary growth outweigh rising bond Cons Discretionary 2%
yields as a driver, strong EPS will be rewarded
- We expect stable growth in industrial production and potentially
Cons Staples -2%
in CAPEX – EPS and low bond yields leads
- Hence, we hold an overweight to industrials
- If we would have a stronger conviction in growth and the Financials 0%
accompanying higher bond yields we would also increase the
exposure to financials and materials
Health Care 2%
- But for the moment we prefer to keep a balanced
strategy and hold our powder dry
- Health care is a sector that is very much in focus right now Industrials 2%
- The present problems will lead to more investments and changed
healthcare policies
Info Tech 0%
- The sector has strong fundamentals and we expect it will provide
returns in the phase we are in until the business cycle accelerates
- Utilities and Staples are classic defensive sectors which we Materials 0%
underweight
- We prefer to hedge the business cycle through pharma instead Utilities -2%
- Our general view is that bond yields are slowly but with increased
conviction moving higher
- And in that perspective, it would be unfavorable to hold
these defensive sectors
Slide 7Investment implications in the new regime
Equities Regions Sectors Style FX Government IG & HY
bonds
Macro • Macro recovery • Expect high • Gradual rotation • Vaccine • Global growth • Stronger growth • Credit-worthiness
continues growth in EM Asia into cyclicals due developments recovery lowers and vaccines of corporates
Recovery • Growth expands • Strong growth to recovery support value demand for USD pushes long-term improves as
above expectation outlook in US • Europe and Japan stocks • Rising inflation rates up growth recovers
• Inflation still below • Gradual catch-up are cyclical • If the market expectation, rising • Rising inflation • Spreads are low
trend, but creeping in Europe • Financials and momentum slows, current acc. could raise 10Y for HY, may stay
up commodities quality benefits reduce USD yield higher so for a extended
attractiveness period.
Central banks • Very easy financial • DM to keep low • Rising long-term • Slowdown in • Continued FED • FED continues to • Rising long-term
conditions rates yields may weaken growth stocks due stimulus reduces resist material rise rates would lead
Monetary • M2 stronger than • EM to hold rates appetite for to higher long-term USD in Treasury yields to spread
stimulus natural demand low defensives rates attractiveness tightening
• Steeper yield • US has indicated a • Focus shifts to • All EM assets
curve new monetary pricing power and supported
paradigm financials
Politics • Supportive fiscal • US election • Fiscal aid and • Fiscal stimulus • Biden policies may • Second major • New round of
policies, but may supports EM vaccines will boost supports value lead to high debt fiscal stimulus stimulus would
Fiscal aid and need more • Fiscal aid is largest cyclicals stocks • Delayed fiscal aid could feed into support high yield
less uncertainty • A structural in the US • Health care, could shore-up rising expectations bonds but the
change, fiscal infrastructure demand for safe of inflation and so spread tightening
policies are havens rising long-term will not
activated rates compensate for
higher yields
Corporates • Strong EPS growth • EPS growth • Earnings in • Dispersion • EUR and EM FX • Level of global • Rising borrowing
• Lower bond yields strongest in EM cyclicals look between growth- have room to indebtness has costs but growth
Rising leverage, • Valuations lowest better than value remains appreciate increased recovery would be
but good in EM defensives wide • But US profits still • Rising EM debt to good for
earnings attractive GDP creditworthiness
Preferred EM Cyclicals> Value+Quali-
OW Weaker USD UW N
weight (Asia)>DM Defensives ty> Growth
Slide 8Risks to the investment regime
- Inflation expectations are creeping up in the US as the FED Figure 1: Covid-19: EU looks more under control while the US remains at elevated levels
continues to support the recovery
- One obvious risk going into 2021 is tapering risks from the FED
- Even though we do not believe they will reduce QE in H1 21’
we will monitor as the narrative of the board members
develops over H1
- Judging from the latest communication from Mr. Powell
tapering is not on the table “no time soon” and the FED will
more than likely let inflation run above 2% for a year before
they start to act
- Covid-19 and new strains of the virus remain worrisome for
investors as vaccinations have kicked off
- In the US deaths are on similar level as in spring 20’ – indicating
that the spread of the virus is on similar levels as it was back then
Figure 2: Daily Number of Covid-19 Vaccination Doses Administrated – Global Figure 3: Inflation expectations are increasing, both in the US and the EU
Slide 9Return Estimates
Figure 1: 12 month forward looking return expectations Figure 2: 12 month forward looking return expectations for equities and bonds
12 15
10 9.0 8.6 8.8 8.4 8.48.0
8 10
2020-12-08
Expected return, %
5.65.2 DM Equities 8.00%
Expected return, %
6 2021-01-19
4 5
2
0.7
0.2
0 0
-0.3-0.2 -0.7-0.6 -1.0-1.0 Fixed Income -1.00%
-2
-4
ies de t
quit quit
ies ities LC Yield t Gra arke ome -5
ed ish e EM E DM
Equ EMD High estmen oney M ixed Inc 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Sw-6 Inv M F
* High Yield and Investment Grade is 50% US and 50% EU Source: SEB Source: SEB
Figure 3: Absolute expected returns Figure 4: Risk utilization since inception
7 90
80
6
Expected return, %
70
Risk utilization
5 65%
60
PF: 4.3%
4
BM: 3.6% 50
3
40
2 30
2015 2016 2017 2018 2019 2020 2021 2015 2016 2017 2018 2019 2020 2021
Source: SEB Source: SEB House View
Slide 10Historical House View Allocation
Figure 1: Equities Figure 2: High Yield
20 6
4
15 3%
2
10
Active weight, %
Active weight, %
8% 0
5 -2
-4
0
-6
-5
-8
-10 -10
2015 2016 2017 2018 2019 2020 2021 2015 2016 2017 2018 2019 2020 2021
Source: SEB House View Source: SEB House View
Figure 3: Emerging Market Debt Figure 4: Fixed Income*
10 20
8 15
6 10
Active weight, %
Active weight, %
4 5
2 0
0 -5
-2 -2% -10 -10%
-4 -15
-6 -20
2015 2016 2017 2018 2019 2020 2021 2015 2016 2017 2018 2019 2020 2021
Source: SEB House View Source: SEB House View
* The 2014-2015 combined overweight to equities and fixed income was
Slide 11 financed by an underweight to Investment Grade, Commodities, and EMD.Summary House View factors Macro and Markets Market and Fair Value Indicators In Focus Asset Class and Sector Views
House View decision variables
- Fiscal Policy takes the number one spot in most important Figure 1: Fiscal Policy and Central Banks continue to be the most important variables for
variables for risk taking going into H1 taking risk going forward
- As we get further confirmation of the fiscal stimulus package in 10
the US focus has shifted away somewhat from Central Banks 8 Fiscal Policy
6 Earnings
- However, we decrease the positive/negative factor for Positioning Central Banks
Central Banks as tapering discussions most likely will be the 4
Positive/Negative
Macro
topic of discussion going forward 2
0
- Macro is once again of increased importance as we monitor the
-2 Politics
economic recovery
-4
- Industrial and manufacturing data have surprised us positively -6 Valuations
over the start of 2021 as service data continues to disappoint -8
- We’ve had a few weak headline employment prints from the -10
US 0 2 4 6 8 10
- However, looking under the hood weakness can be Importance
Source: SEB House View
attributed to lockdowns and a weaker than expected service
sector Figure 2: The importance of Politics decreased once again as we have cleared the risks
- The importance of positioning has increased as we see that related to the US election. Focus shifts more towards macro as the recovery continues
professional investors are not as invested in the market as we 10
earlier thought 8
- However, investors have increased their exposure over the
Change in positive/negative
6
Positioning
autumn and are net-long; for details see slide 22 4
Fiscal Policy Macro
- On a 3-6M horizon the House View Committee holds a positive view 2
Valuations
on risky assets 0
Earnings
- The largest risks are seen as tapering from the FED as inflation is -2 Central Banks
Politics
expected to increase slowly over H1 -4
- Together with negative development of the pandemic and -6
slower than expected vaccination programs -8
-10
-3 -2 -1 0 1 2 3 4
Change in importance Source: SEB House View
Slide 13Summary House View factors Macro and Markets Market and Fair Value Indicators In Focus Asset Class and Sector Views
Developments in the Markets
- Global equities reached all-time highs as vaccines began to rollout Figure 1: Cyclicals and small caps have been the driver behind the rally. The result of a
and Democrats won control of Congress Democratic Senate majority further boosted sectors that would benefit from more stimulus
- As the administration of vaccines began in December, hopes of
recovery led gains in commodities, cyclicals and small caps
- However, the initial rollout was slower than anticipated,
delays in delivery were announced, new virus variants were
detected, and the number of cases and hospitalisations rose
- As such, governments prompted extensions of lockdown
restrictions in order to control the spread of the virus
- With victories in the Georgia run-off elections in January,
Democrats won control of Congress, which pushed market
participants to anticipate stronger economic growth
- Small caps and value stocks performed strongly as a “blue
wave” is expected to pass more fiscal spending
- As such, the government bond market saw the yield curve
steepen as markets expect higher inflation Figure 2: On a regional basis emerging markets have performed the strongest across global
- And emerging markets rallied as the dollar slid, oil price rose, markets
and geopolitical tensions are expected to subside
- The US Congress approved a stimulus package of nearly $900bn
- The economic relief package includes relief for small businesses
($300bn), a new round of direct payments for US adults ($600
per individual), and a top-up in unemployment insurance
- Biden announced his economic stimulus plan of $1.9tn
- His plan includes further direct payment to Americans, aid to
state and local governments, extensions of emergency jobless
benefits and funding for coronavirus responses
- Trade talks between the UK and the EU concluded and Britain
withdrew from the EU with a deal on the 31st of December 2020
-
Slide 15Economy – Developed Markets
- Leading macro indicators increased more than expected Figure 1: US and European PMIs recovered in December driven by stronger foreign demand.
- The components of the ISM showed a pick up in new orders, News of vaccine approvals improved confidence among manufacturers about the year ahead
strong growth in production and a rise in prices paid against a
backdrop of firmer demand and lean customer inventories
- Soft data on services showed gains in business activity and new
orders, but was also bolstered by supplier deliveries
- However, the employment index dipped and supply
distributions broadened due to state lockdowns
- In Europe, manufacturing data signalled improvement, but results
may not fully reflect disruptions due to lockdowns in December
- Euro-area services improved, but remain depressed
- Overall both business and consumer confidence improved
- However, hard data in developed markets came in weaker
- The US economy shed jobs in December due to the restrictions
- Retail sales, in particular in department store sales, declined
Figure 2: As market participants expect increased fiscal spending and stronger economic
- While online shopping were bolstered by consumer spending growth, the 10Y breakeven rate increased and prices of commodities have rallied
- However, despite the downturn in economic data, and the Capitol
riots, markets have largely shrugged it off, but it could weigh on
the pace of the economic recovery moving forward
- Which hints that the optimism about the economic rebound
currently priced in, may be overestimated
- Economic growth in the coming months is expected to be sluggish
given the tightening of restrictions, but vaccines and a “blue wave”
counterweight with bets of higher growth for next year
- The 10Y breakeven rate climbed to 2% as prospects of swift
price increases hit US government bond market
Slide 16Economy – Emerging Markets
- EM PMI:s stayed in expansion even as the pandemic worsened Figure 1: Macro indicators show that emerging markets will continue persevere even as the
- Businesses remained optimistic about the outlook for the year pandemic worsens. However, weakening external demand is a risk
- Production and new orders showed improvements
- Asia’s manufacturing persevered mainly due to domestic factors
- Overseas lockdown and supply-chain disruptions could pose
challenges for the region’s recovery
- Services in Asia stayed in expansion, but showed a mixed picture
- Increasing vaccinations could boost external demand
- According to high-frequency data, economic activity improved
- In Latin America, business activity in Brazil rose
- Industrial production and retail sales have increased
- But risks remain on rising prices of inputs and deteriorating
fiscal outlook
- China’s leading indicators continued to expand but at slower pace
- Growth looks set for a strong pickup in 2021 Figure 2: In December China’s CPI moved back into positive territory raising hopes that the
- The economy remains supported by consumer spending recovery would further bolster demand
- China’s industrial production and retail sales stayed strong
- Exports remained strong and continue to drive the recovery
- Credit growth remains supportive of the economy
- China has been ahead of the curve in the recovery from the
pandemic and as such have seen a rise in inflation
- The PBOC will likely remain accommodative in 2021, but
with inflation likely to rebound, tail risks are increasing that
the they could tighten monetary policy later this year
- The Renminbi rallied as a result of stronger economic growth
Slide 17Summary House View factors Macro and Markets Market and Fair Value Indicators In Focus Asset Class and Sector Views
SEB House View – Macro Status
- Macro levels remain solid in the US and in Emerging Markets Figure 1: US macro surprises continues to decrease at the start of 21’
6
- At the same time forecasters have increased their expectations, Max: 2020-07-09
hence macro surprises and momentum have come down over late 5
December and early January 4
- ISM Services in the US should be taken with a pinch of salt
Surprise indicator
3
- The December print was strong at 57.2, but for wrong
2
reasons when the Supplier Delivery component rose sharply
due to supply-chain disruptions 1
- In EM we continue to see support from hard data, such as exports 0
from China and South Korea
-1
- But also, soft data as in Markit PMIs from Taiwan and SK
Min: 2020-04-30
-2
- In Europe surprises have come up, but the level is still muted, Apr May Jun Jul Aug Sep Oct Nov Dec Jan
most likely related to more severe lockdown measures taken in
the EZ
Source: SEB House View
Figure 2: EM macro surprises are fading – but data is still surprising on the upside Figure 3: The level of EM Macro remains at the top of the three regions we monitor
5 1
Max: 2020-05-25 Max: 2021-01-14
0.5
0
Macro level
0 -0.5
-1
-1.5 Min: 2020-07-07
Min: 2020-03-19
-5 -2
Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Q1-19 Q2-19 Q3-19 Q4-19 Q1-20 Q2-20 Q3-20 Q4-20 Q1-21 Q2-21
Slide 19 Source: SEB House View Source: SEB House ViewSEB House View – Risk Indicator (1/2)
- The Risk Indicator has continued to notch up closer to its Euphoria Figure 1: Extreme states plotted on S&P 500
state
- This is on the back of very strong markets through late 2020 and
early 2021
- Compared to our last House View meeting we have seen a rise in
treasury yields which contributes to the increased risk appetite
- However, most of the increase in risk appetite can be
explained by further rotations within equities
- For instance, in the EM vs DM spread
- And rotation between defensives and cyclicals
- As the volatile periods of 2020 starts to roll out of the risk
indicators window the indicator will continue to rise
- This is purely technical, and one can note a similar behavior
in 2017 when markets calmed down after a volatile 2016 Source: SEB House View
Figure 2: SEB House View Risk Indicator – Contribution by Factors Figure 3: House View Risk Indicator – Short Time Horizon
Source: SEB House View Source: SEB House View
Slide 20SEB House View – Risk Indicator (2/2)
- Given that the Risk Indicator is so close to the its Euphoria limit, Figure 1: S&P 500 Performance by Horizon and Risk Indicator State
here we aim to evaluate the accuracy of the indicator
- Figure 1 summarizes the median return at the two different
extreme states – given that one buys at a panic signal alpha is
generated regardless of the horizon
- However, for a euphoria signal positive alpha is only
generated at 8-, 9-, 10- and 12-month horizon – i.e., we get a
lot of false euphoria signals
- Figure 2 & 3 illustrates the accuracy for each given horizon, the
90% confidence interval is rather wide at all horizons – reflecting
the large uncertainty in calling a market peak or trough
- The conclusion being that the indicator is more accurate at calling
a market bottom, given the median outperformance illustrated in
Figure 1
Source: SEB House View
Figure 2: S&P 500 Performance with Risk Indicator at Euphoria levels Figure 3: S&P 500 Performance with Risk Indicator at Panic levels
Source: SEB House View Source: SEB House View
Slide 21SEB House View – Investor Positioning
- Positioning among investors is difficult to measure but it’s an Figure 1: Number of long/short/net-long contract, S&P 500 e-mini futures
important factor when assessing how greedy investors are
- The SPX future is the most liquid and traded, hence we believe it
should give the best overall view of investors positioning
- Data included here only includes professional investors – i.e.,
retail aside
- Figure 1 & 3 suggest that investors are net-long, but although at
quite low levels compared to the start of 2020 where we saw a
surge in net-longs
- Figure 2 shows how net-long investors are split up onto different
investor types - notable is that “Asset Manager/Institutional” has
the largest turnover
- Even though markets are close to highs, positioning for
professional investors are not crowded in our view
Source: SEB House View, CFTC
Figure 2: Net-long by investor type, S&P 500 e-mini futures Figure 3: 3Y Z-score S&P 500 e-mini future. Net-long / open interest
Source: SEB House View, CFTC Source: SEB House View, CFTC
Slide 22Summary House View factors Macro and Markets Market and Fair Value Indicators In Focus Asset Class and Sector Views
In Focus: SEB House View – Mobility Measure
- We follow up on the mobility measure that we introduced in the Figure 1: Length of Stay - Residential
December House View
- Over the Christmas and New Years holiday we have seen muted
movement
- Naturally, Length of Stay: Residential, Figure 1, has risen
over the holidays but are now moving back to levels seen in
early December
- However, we have more severe restrictions in several countries
included in this data, e.g. Germany and the UK
- We believe that “Transit Stations” gives the best overall measure
of movement of the public
Source: SEB House View
Figure 2: Length of Stay – Retail & Recreation Figure 3: Length of Stay – Transit Stations
Source: SEB House View Source: SEB House View
Slide 24Summary House View factors Macro and Markets Market and Fair Value Indicators In Focus Asset Class and Sector Views
Developed Market Equities – 12M Outlook
- On a 12 month forward looking horizon the risk-reward of global Figure 1: As Democrats won control of Congress, the 10Y yield moved higher.The equity risk
equities remains skewed to the upside premium remains elevated, but with rising nominal rates we could see further tightening
- We expect developed market equities to deliver risk-adjusted
returns in excess of government bonds
- Accommodative monetary policy, fiscal stimulus, vaccines
and therapeutics, will support the normalization of economic
activity which will in turn support the asset class
- Earnings can pick-up given the projected economic activity
- Q4 earnings season for 2020 kicked off and has so far surprised
strongly to the upside
- However, this is coming-off from low levels they start from
- We expect that value and cyclical sectors will likely see
a meaningful pickup in earning levels this year
- 2021 will favor companies that can deliver earnings growth that is
not already priced in or expected
- However, on the near term there are some headwinds to equities Figure 2: As we head into Q4 2020 earnings season we expect further upgrades in EPS
with virus-related lockdowns and risks to demand estimates. Vaccines, monetary and fiscal stimulus support earnings growth going forward
- High-frequency data is signaling weaker activity
- P/E multiples will remain at high levels from a historical view, but
can slightly contract due to better incoming earnings
- Low rates will continue to be the reason behind lofty valuations
- But valuations will as such become more important next year
- With continued FED support, equities can continue to run higher
- Given the average inflation target, inflation can rise next year
- Both TINA and FOMO will continue to support developed
market equities
Slide 26Emerging Market Equities – 12M Outlook
- We expect Emerging Market equities to deliver returns in excess of Figure 1: Since the US election the MSCI EM index is trading at a higher multiple. But
Developed Market equities over the next 12 months within the EM space we see a clear discrepancy between EM Asia and EM ex Asia
- EM assets should continue to benefit from a dovish FED, elevated
global growth and a decrease in the risk premia on trade tensions
- With the election outcome of a Biden presidency, the
geopolitical risks of escalations in trade tensions is reduced
- Expected weaker dollar will support EM equities
- Due to a wider current account deficit in the US as well as
negative real interest rates
- Price levels in EM equities remain attractive
- And with the possibility of further market rotation into value,
the asset class may benefit further
- Momentum into EM equities is picking up, but is not yet broad
- Thus, there may be further opportunities in the asset class
- Global growth recovery and international trade rebounding will
Figure 2: EPS estimates for 2021 reflect strong optimism for the recovery in EM
support the EM ex Asia region which may likely catch up to Asia
- Fundamentals in EM Asia, particularly in China, look resilient and
will support the asset class for the next 12 months
- China is supporting consumption and investments through
stimulative monetary and fiscal policies
- Accommodative global monetary policies and a weaker dollar is
supportive of the asset class
- With the expectation of a wider distribution of vaccines in 2021,
there are opportunities for regions that have been hit hardest from
the coronavirus
- In particular in EM countries outside Asia
Slide 27High Yield Bonds – 12M Outlook
- High Yield bonds look set to deliver higher returns than Investment Figure 1: Since the race in the US Senate, we have seen further tightening in credit spreads
Grade and Government Bonds
- On a 12 month horizon the relative attractiveness of High Yield
bonds to equities has diminished given the further tightening of
spreads after the news of a Democratic controlled Congress
- The 10Y yield moved higher and so spreads are tighter
- Still, on a tactical horizon spreads remain attractive
- As vaccines rollout and economic activity normalizes moving
forward we expect it to support credit profiles
- In particular, bonds that have been most affected by COVID-
19 and been lagging the market – such as travel companies
- Even though, the potential for economic normalcy has
increased, there are challenges in the distribution of a
vaccine and other factors which may be underestimated
- Nevertheless, the Fed backstop will continue to support high yield
- We do not expect spread widening in the near term Figure 2: According to the Bloomberg Corporate Bankruptcy Index, the number of bankruptcies
and amount of liabilities are lower now than during the GFC and is trending downwards
- The FED has stated that they will buy fallen angels and HY ETFs
- Thus, the support from the Fed reduces the likelihood that
tail risks are priced in
- We expect to see continued inflows into the asset class
- The global hunt for yield will be supportive of the asset class
- We do not expect a significant rise in defaults
- As long as central banks stimulate we expect to see it as
unlikely that default risks will be priced aggressively
Slide 28Emerging Market Debt – 12M Outlook
- We maintain an underweight to Emerging Market Debt in favor of Figure 1: Yield compressions place an implicit cap on future performance for emerging
an overweight in High Yield bonds market debt
- EMD spreads are still lower than High Yield spreads, but with US
rates moving higher, we have seen a convergence in spreads
- Local debt in Asia has been outperforming EM peers in Latin
America, but a softer dollar can only deliver marginal
continued support to the asset class
- The rate component may be supported by further monetary
stimulus
- As DM bonds in ever increasing numbers are falling into negative
territory we expect investors may try and find yield in the EM
space
- We expect the FX component of EMD LC to remain volatile over the
coming months
- EM FX has been under increased pressure during 2020 and saw
its bottom vs USD in March Figure 2: The JP Morgan EM Currency Index depreciated in US dollar terms over
- It has since then appreciated somewhat, but with an March, but has since appreciated
underweight position the risk that EM FX appreciates vs USD
is a key risk
- Current account balances deteriorated in 2020, but are
slowly recovering
- Monetary easing in EM will have negative pressures on the FX
component
- However monetary easing by the FED and ECB will all else
equal be positives
Slide 29Government Bonds – 12M Outlook
- We maintain an underweight to Government Bonds Figure 1: The collapse in real yields implies that parts of the Treasury market is
- Treasury yields are likely to remain at lower levels as the FED expected to underperform over the next decade
maintains a dovish monetary policy throughout the year
- As the Fed continues asset purchases and the FED fund
target remains close to zero
- Going into 2021 consensus is for yields to climb, but we think the
Fed will lean dovish rather than risk early hikes
- As such yields should remain low, but we expect a slight
steepening in the curve
- Real yields remain negative as nominal yields are low and inflation
expectations pick up
- Markets expect policy makers to keep the stimulus tap running,
even though inflation may pick up
- Tumbling real yields may also explain the strong rally in stocks
- The enormous coordinated monetary and fiscal stimulus in the US
has been so much larger than during the GFC Figure 2: US public debt has ballooned following fiscal packages passed in Congress.
The fiscal deficit is significantly larger than during the GFC
- Central bank’s bond-buying programs have allowed for the FED’s
balance sheet to balloon
- The FED is likely to hold short-term rates close to zero until
inflation is sustainably above target
- And with increased fiscal debt in developed markets, yields are
expected to remain capped
Slide 30Region Overview
Regional equity positioning Figure 1: SEB House View region score*
8 Forward EPS %
EPS rev
6 Sentiment
Valuation
4 Momentum
Japan
2
0
East Asia Ex....
Contribtion to score
-2
North America
Europe
-4
EM Ex. Asia
EM Asia
Sweden
-6
-8
* Ranked by total score with highest score starting from left
Benchmark is MSCI All Country
Slide 31EM Asia – Overweight
- We overweight EM Asia as the region remains attractive given the Figure 1: Standardized relative valuation – Current constituents
backdrop of a global economic recovery in 2021 and supportive 1
fiscal policies in China
12M Forward PE premium to market
- In terms of earnings growth, the region receives a high score 0
- From a sector perspective, the tech sector is the largest
-1 +2 std -0.9
contributor to strong earnings growth and upward revisions
- Valuations remain attractive versus the overall market
-2
- But multiples are now trading higher than last month
Mean -2.4
- The index price rose, but EPS estimates were fairly unmoved Latest -2.5
-3
- The region maintains robust momentum as we have seen the
investor community pouring funds into the region -2 std -3.9
-4
- Easing of US-China tensions provides further legs 2017 2018 2019 2020 2021
- China’s continued economic strength, infrastructure spending and
fiscal stimulus will continue to support the region Source: SEB House View
Figure 2: Contribution to House View Region Score Figure 3: Absolute valuations – Current constituents
10 20
2021-01-20 Market: 19.5
2020-12-09
8 18
7 7 7 EM Asia (sector neutral): 17.0
12M Forward PE
EM Asia: 16.3
Rank 1-7 (7 best)
6 6 6 16
6
4 14
4
3 3
12
2
1
10
2015 2016 2017 2018 2019 2020 2021 2022
0
Forward EPS % EPS rev Sentiment Valuation Momentum
Slide 32 Source: SEB House View Source: SEB House ViewEM Ex Asia – Neutral
- We maintain a neutral weight to EM ex Asia for now, but are seeing Figure 1: Standardized relative valuation – Current constituents
an increasing opportunity moving forward 4
- The region may be the last in the economic recovery from the
12M Forward PE premium to market
3
coronavirus induced recession 2 +2 std 2.1
- As such, there is still room for catch-up in the region
1
- But hurdles remain depending on the vaccine distribution Mean 0.3
0
- On a valuation basis, the region is now more attractive than Asia Latest 0.2
-1
- Price levels have risen, but so has EPS estimates -2 std -1.4
- And over the last couple of months we have seen an uptick in -2
momentum as the market looks more for value trades -3
- Earnings growth are still low, but over the last month the -4
consensus EPS has sharply turned positive 2017 2018 2019 2020 2021
- Materials which make up a large sector part in the region, have
seen strong positive EPS revisions Source: SEB House View
Figure 2: Contribution to House View Region Score Figure 3: Absolute valuations – Current constituents
10 22
2021-01-20
2020-12-09 20 EM Ex. Asia (sector neutral): 19.7
8 Market: 19.5
18
12M Forward PE
Rank 1-7 (7 best)
6
6 16
5 5
14
4 4 EM Ex. Asia: 13.5
4
3 12
2 10
2
1 1 1
8
2015 2016 2017 2018 2019 2020 2021 2022
0
Forward EPS % EPS rev Sentiment Valuation Momentum
Slide 33 Source: SEB House View Source: SEB House ViewEurope – Neutral
- We maintain our neutral position in pro-cyclical Europe Figure 1: Standardized relative valuation – Current constituents
1
- Renewed lockdowns threaten the regions recovery
12M Forward PE premium to market
- However, the ECB remains accommodative and governments 0.5
continue to offer fiscal support
- ECB expanded its PEPP and extended it to 2022 0
- Valuations are higher than last month +2 std -0.3
-0.5
- Risks of elevated 2021 earnings growth are increasing
Mean -0.9
- Despite vaccine rollouts in 2021, the economic recovery in the -1
region will likely take time Latest -1.3
-1.5
- Alternative data is pointing to slower economic activity -2 std -1.6
- Vaccine rollouts in the region has been slower than anticipated -2
2017 2018 2019 2020 2021
and could disappoint the market sentiment
- Before increasing the allocation in the region, we would like to see
improvements in macro Source: SEB House View
Figure 2: Contribution to House View Region Score Figure 3: Absolute valuations – Current constituents
10 20
2021-01-20 Market: 19.5
2020-12-09
18 Europe (sector neutral): 18.2
8
Europe: 17.4
12M Forward PE
Rank 1-7 (7 best)
6 6 16
6
5 5
4 4 14
4
3 3
12
2 2
2
10
2015 2016 2017 2018 2019 2020 2021 2022
0
Forward EPS % EPS rev Sentiment Valuation Momentum
Slide 34 Source: SEB House View Source: SEB House ViewJapan – Underweight
- On a fundamental level we are negative to Japan – hence we Figure 1: Standardized relative valuation – Current constituents
maintain our underweight 3
- Our model ranks Japan worst in relation to other regions
12M Forward PE premium to market
2
- Economic recovery is set to be slow and fundamentals are weak
1
- Earnings look dull as 12M Forward EPS growth are negative
0
- And earnings revisions are weaker than other regions
+2 std -0.6
- Challenges point to a tough road ahead as deflation risks are re- -1 Latest -0.9
emerging, GDP is low and fiscal debt is set to balloon Mean -1.8
-2
- Nevertheless, fiscal and monetary policies are currently
supportive for growth -3 -2 std -2.9
- Therefore, we continue to prefer pro-cyclical exposures in -4
Emerging Asia instead of Developed Asia 2017 2018 2019 2020 2021
Source: SEB House View
Figure 2: Contribution to House View Region Score Figure 3: Absolute valuations – Current constituents
10 24
2021-01-20
2020-12-09 22 Japan: 22.3
8
7 20
Market: 19.5
12M Forward PE
Rank 1-7 (7 best)
6 6 Japan (sector neutral): 18.6
6 18
16
4
4
14
2 2 2 12
2
1 1 1
10
2015 2016 2017 2018 2019 2020 2021 2022
0
Forward EPS % EPS rev Sentiment Valuation Momentum
Slide 35 Source: SEB House View Source: SEB House ViewNorth America – Neutral
- We maintain our neutral allocation to North America Figure 1: Standardized relative valuation – Current constituents
3
- Our model points to strong EPS growth for the region
12M Forward PE premium to market
- But the region has mostly been driven by multiple expansions +2 std 2.6
2.5
- The risks of increasing inflation expectations and rising long-
term rates pose a risk for the tech-heavy region Latest 2.1
2
- However, given the lingering uncertainty of a robust global Mean 1.9
recovery the defensive characteristics may provide a hedge
1.5
- Renewed lockdown measures pose risks for the service sector -2 std 1.3
- The December payrolls showed that the US lost jobs for the 1
first time in eight months
- Adding pressure for more stimulus from a Biden government 0.5
2017 2018 2019 2020 2021
- The region has performed strongly in the early hopeful stages of
the recovery since March, but we need further confirmation of a
sector rotation before changing the allocation for the region Source: SEB House View
Figure 2: Contribution to House View Region Score Figure 3: Absolute valuations – Current constituents
10 24
2021-01-20
2020-12-09 22 North America: 21.9
8
North America (sector neutral): 21.6
7 7
20
12M Forward PE
Market: 19.5
Rank 1-7 (7 best)
6
6
5 5 5 18
4
4 16
3
2 2 14
2
12
2015 2016 2017 2018 2019 2020 2021 2022
0
Forward EPS % EPS rev Sentiment Valuation Momentum
Slide 36 Source: SEB House View Source: SEB House ViewSector Overview
Sector UW N OW Figure 1: SEB House View sector score
Consumer Stap...
15 Forward EPS %
EPS rev
Information Technology
Communication Services UW Sentiment
10 Valuation
Consumer Discretionary OW Momentum
Utilities
Consumer Discretio...
5
Consumer Staples UW
0
Financials N
Contribtion to score
Communication Services
Industrials
Health Care OW -5
Financials
Materials
Health Care
Industrials OW -10
Information Technology N -15
Materials N Source: SEB House View
Utilities UW
* We do not take views on Energy or Real Estate. The former is too much of an oil
call and the latter is too small a sector. (X) Indicates last months positioning.
Slide 37Communication Services – Underweight
- Communication Services remains our financing source for the Figure 1: Standardized relative valuation – Current constituents
overweight to Health Care 7
- We continue to believe that the growth/value neutral sector is a
12M Forward PE premium to market
6
beneficial as a financing source when the market rotates 5
between growth and value
4
- Communication Services is leveraged to advertising, in
particular SMEs use the media platforms included in the 3
sector as advertising 2
- And SMEs have had a tough 2020 with more scarce 1 +2 std 0.9
marketing budgets going into 2021
0 Mean 0.1
Latest -0.3
-1 -2 std -0.8
2016 2017 2018 2019 2020 2021
Source: SEB House View
Figure 2: Contribution to House View Sector Score Figure 3: Absolute valuations – Current constituents
12 24
2021-01-20
Market 22.9
2020-12-09
10 22 Communication Services 22.6
8 8 8
12M Forward PE
8
Rank 1-9 (9 best)
20
6
6
5 18
4 4
4
16
2
2
1 1
14
2018 2019 2020 2021 2022
0
Forward EPS % EPS rev Sentiment Valuation Momentum
Slide 38 Source: SEB House View Source: SEB House ViewConsumer Discretionary – Overweight
- We maintain the overweight to Consumer Discretionary Figure 1: Standardized relative valuation – Current constituents
18
- The sector offers the highest EPS growth going into the recovery +2 std 17.7
year of 2021
12M Forward PE premium to market
16
- EPS revisions remain on a high level with most of the 14
companies in the sector contributing
12
Mean 11.6
- Most of the EPS growth comes from Amazon and the auto Latest 10.8
10
manufacturers in the sector
- Valuation is, and remains, elevated as the recovery is mostly 8
discounted 6
-2 std 5.5
- However, it is not unusual for the cyclical sector to have a 4
high absolute valuation at the start of an economic cycle
2
2016 2017 2018 2019 2020 2021
Source: SEB House View
Figure 2: Contribution to House View Sector Score Figure 3: Absolute valuations – Current constituents
12 40
2021-01-20
2020-12-09
10 35
9 9 9 9 9 Consumer Discretionary 33.7
30
12M Forward PE
8
Rank 1-9 (9 best)
7
25
6
5 5 Market 22.9
20
4
15
2
1 1
10
2018 2019 2020 2021 2022
0
Forward EPS % EPS rev Sentiment Valuation Momentum
Slide 39 Source: SEB House View Source: SEB House ViewConsumer Staples – Underweight
- We maintain the underweight position to Consumer Staples Figure 1: Standardized relative valuation – Current constituents
6
- The sector continues to be ranked as a neutral
12M Forward PE premium to market
- Post the market trough around the US election the sector has
4
lagged the market by some 10%-points
- We attribute this underperformance to both being out of
2 +2 std 1.9
favor in a risk-on market as well as steeper yield curve
- If yields continue to tick up, we expect further
0
underperformance from Staples
Mean -0.9
- Earnings multiples are still lower than the market, but it’s mostly
-2
related to cyclical sectors boosting the earnings multiple of the Latest -2.4
market due to their sluggish earnings in 20’
-2 std -3.7
-4
2016 2017 2018 2019 2020 2021
Source: SEB House View
Figure 2: Contribution to House View Sector Score Figure 3: Absolute valuations – Current constituents
12 24
2021-01-20
Market 22.9
2020-12-09
10 22
9 9
8
12M Forward PE
8 Consumer Staples 20.5
Rank 1-9 (9 best)
20
6
6
18
4
3 3 3 16
2 2 2
2
14
2018 2019 2020 2021 2022
0
Forward EPS % EPS rev Sentiment Valuation Momentum
Slide 40 Source: SEB House View Source: SEB House ViewFinancials – Neutral
- We continue to monitor longer dated yields in combination with the Figure 1: Standardized relative valuation – Current constituents
steepness of the yield curve -2
- During the start of 2021, the curve steepened and the 10Y yield
12M Forward PE premium to market
-3
increased by approximately 20 bps -4
- This is significant given how dovish the FED has been not only
-5
during 20’ but also going into 21’
-6
- However, rates have some way to go – even before it +2 std -6.2
reaches pre-Covid19 levels -7
- Entering a position in Financials is not only related to higher yields -8 Mean -7.9
but also a factor discussion Latest -8.0
-9
- Currently the portfolio has a minor value tilt which we -2 std -9.7
believe is correct at the start of an economic expansion -10
2016 2017 2018 2019 2020 2021
- We maintain a neutral position to the sector
Source: SEB House View
Figure 2: Contribution to House View Sector Score Figure 3: Absolute valuations – Current constituents
12 25
2021-01-20
Market 22.9
2020-12-09
10
9 20
8
12M Forward PE
8
Rank 1-9 (9 best)
7
6 6 15 Financials 14.9
6
4 4 4
4
3 10
2
2
5
2018 2019 2020 2021
0
Forward EPS % EPS rev Sentiment Valuation Momentum
Slide 41 Source: SEB House View Source: SEB House ViewHealth Care – Overweight
- Health Care is our defensive sector of choice Figure 1: Standardized relative valuation – Current constituents
2
- The overweight is both based on bottom-up fundamentals and
from a portfolio construction view it serves as a hedge in the
12M Forward PE premium to market
portfolio 0
- In contrast to the other defensives Health Care is less +2 std -1.6
sensitive to a steeper yield curve and cheaper on earnings -2
multiple
- The sector is valued at multiyear lows in comparison to MSCI US, -4
Mean -4.6
however we have seen a minor pickup in the valuation post the
Latest -5.7
US election -6
- On the back of the Senate election in Georgia some policy
-2 std -7.6
uncertainty is partly back into focus – we believe this is priced in -8
2016 2017 2018 2019 2020 2021
- It will also be difficult for the Biden Administration to pass
major changes to health care policy given the 50-50 Senate Source: SEB House View
Figure 2: Contribution to House View Sector Score Figure 3: Absolute valuations – Current constituents
12 24
2021-01-20 Market 22.9
2020-12-09 22
10
9
8 20
12M Forward PE
8
Rank 1-9 (9 best)
6 18
6 Health Care 17.2
16
4 4
4
3 3 3
14
2
2
1
12
2018 2019 2020 2021
0
Forward EPS % EPS rev Sentiment Valuation Momentum
Slide 42 Source: SEB House View Source: SEB House ViewIndustrials – Overweight
- EPS estimate continue to hold up as we move into 2021 Figure 1: Standardized relative valuation – Current constituents
2
- EPS revisions are not as impressive as in December but maintains
a decent level +2 std 1.5
12M Forward PE premium to market
1
- However, the share of companies that have seen upgrades
to their EPS estimates recently is close to an ATH at 90% Latest 0.3
0
- In addition, the contribution to EPS growth is broad across
Mean -0.4
the sector – which is supportive when holding an overweight
-1
- Airlines and airline suppliers remain a risk to estimates
- A recovery is estimated and discounted, a disappointing
-2
development of the pandemic continues to serve a minor risk -2 std -2.3
to the sector
-3
- We still believe the sector is attractive to own in the recovery 2016 2017 2018 2019 2020 2021
phase of the economy
- We maintain the overweight Source: SEB House View
Figure 2: Contribution to House View Sector Score Figure 3: Absolute valuations – Current constituents
12 24
2021-01-20 Industrials 23.2
2020-12-09 22 Market 22.9
10
8 8 8 20
12M Forward PE
8
Rank 1-9 (9 best)
7 7
6 18
6
5
4 16
4
3 3
14
2
12
2018 2019 2020 2021
0
Forward EPS % EPS rev Sentiment Valuation Momentum
Slide 43 Source: SEB House View Source: SEB House ViewInformation Technology – Neutral
- Relative earnings strength from 2020 are fading in 2021 Figure 1: Standardized relative valuation – Current constituents
8
- Going into 2021 the sector will have tougher comparisons in
combination with crowded positioning
12M Forward PE premium to market
6 +2 std 6.3
- The software related companies, such as Microsoft, had stellar Latest 5.9
2020 as users moved to their cloud solutions 4 Mean 4.3
- Some of the hardware related companies such as Intel and Texas -2 std 2.4
2
Instruments had a tougher 2020
- Figure 3 shows the rebound in global semiconductor sales, if 0
this development continues, we will most likely see a
rebound for companies in this subsector -2
- EPS growth are expected to be better in cyclical sector – partly
related to base effect where cyclicals had a dull 2020 -4
2016 2017 2018 2019 2020 2021
- Hence, we maintain a neutral position
Source: SEB House View
Figure 2: Contribution to House View Sector Score Figure 3: Global Semiconductor sales improved during 2020
30
Information Technology 28.8
28
26
12M Forward PE
24
Market 22.9
22
20
18
16
14
2018 2019 2020 2021 2022
Slide 44 Source: SEB House ViewMaterials – Neutral
- We maintain the neutral position to Materials Figure 1: Standardized relative valuation – Current constituents
2
- The sector remains a neutral in our rankings with EPS revisions
begin the only factor that increased in relative rank since
12M Forward PE premium to market
1
December 20’ 0
- China is moving closer to chemical independence +2 std -0.9
-1
- With 70% of the revenue in Materials related to chemicals Latest -1.0
-2 Mean -1.6
this continues to be a headwind for the sector
-2 std -2.4
- Figure 3 shows US chemical exports where the export -3
growth has faded since the last high in 2017 -4
- Infrastructure spending from the Biden Administration could turn -5
the headwind
-6
- However, when comparing the revenue of the sector with 2016 2017 2018 2019 2020 2021
any infrastructure package one realizes that the impact is
minimal Source: SEB House View
Figure 2: Contribution to House View Sector Score Figure 3: US Exports of Chemical Products
12
2021-01-20
2020-12-09
10
8
8
Rank 1-9 (9 best)
7 7 7 7
6
6
5
4
4
3
2
1
0
Forward EPS % EPS rev Sentiment Valuation Momentum
Slide 45 Source: SEB House View Source: SEB House ViewUtilities – Underweight
- We maintain our underweight position to Utilities Figure 1: Standardized relative valuation – Current constituents
4
- The sector has performed as we’ve expected during the recent
time with rising treasury yields
12M Forward PE premium to market
2
- The fixed income surrogate is increasingly under pressure as
the yield curve steepens 0 +2 std 0.2
- Relative valuation has improved for the sector
-2
- However estimated EPS growth and EPS revision are on
the rock bottom in the universe -4
Mean -3.5
- We continue to see relative downside in the sector given the Latest -4.9
outlook for treasury yields -6
- Hence, we maintain the underweight -2 std -7.3
-8
2016 2017 2018 2019 2020 2021
Source: SEB House View
Figure 2: Contribution to House View Sector Score Figure 3: Absolute valuations – Current constituents
12 24
2021-01-20
Market 22.9
2020-12-09 22
10
9
20
12M Forward PE
8
Rank 1-9 (9 best)
7 7
6 18 Utilities 18.0
6
16
4
14
2 2
2
1 1 1 1
12
2018 2019 2020 2021
0
Forward EPS % EPS rev Sentiment Valuation Momentum
Slide 46 Source: SEB House View Source: SEB House ViewDisclaimer 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 47
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