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 3
Investment 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 4
Asset 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 5
Regional 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 6
Sector 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 7
Investment 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 8
Risks 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 9
Return 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 10
Historical 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 13
Summary
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 15
Economy – 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 16
Economy – 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 17
Summary
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 View
SEB 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 20
SEB 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 21
SEB 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 22
Summary
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 24
Summary
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 26
Emerging 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 27
High 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 28
Emerging 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 29
Government 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 30
Region 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 31
EM 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 View
EM 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 View
Europe – 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 View
Japan – 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 View
North 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 View
Sector 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 37
Communication 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 View
Consumer 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 View
Consumer 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 View
Financials – 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 View
Health 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 View
Industrials – 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 View
Information 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 View
Materials – 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 View
Utilities – 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 View
Disclaimer

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Slide 47
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