SEB’s Investment Outlook: Navigating Late-Cyclical Phase with Caution and Opportunities

SEB’s Investment Outlook: Navigating Late-Cyclical Phase with Caution and Opportunities

(IN BRIEF) SEB’s Investment Outlook for the current economic situation suggests that a soft landing may be on the horizon, characterized by both a cyclical slowdown and ongoing efforts to combat inflation through tight monetary policies. While late-cyclical phases typically see reduced risk appetite and increased credit events, the situation is expected to balance as key rate cuts and growth recovery take effect. SEB anticipates central banks possibly reducing key interest rates around mid-2024, which could ease investor risk aversion. The outlook envisions a relatively short, shallow soft landing for global economic growth but acknowledges potential short-term challenges. SEB recommends a neutral risk exposure position, considering near-term risks and medium-term opportunities. The investment strategy for 2023 emphasizes broad risk diversification with a neutral allocation between asset classes, and an overweight in fixed income investments compared to alternative investments and hedge funds. The report also includes theme articles on GLP-1 and electricity markets.

(PRESS RELEASE) STOCKHOLM, 28-Nov-2023 — /EuropaWire/ — It looks as if today’s situation, with double braking mechanisms in the form of a cyclical slowdown and a continued fight against inflation accompanied by tight monetary policies, may possibly ease. We are still in a late-cyclical phase, with a predicted soft landing ahead of us. In this phase, risk appetite usually diminishes since earnings are squeezed and the percentage of credit events increases, but the situation becomes more balanced once key rate cuts and growth recovery take shape. In this environment, we believe that risk exposure around a neutral position is appropriate.

“A continued decline in inflation rates indicates that central banks may conceivably start cutting key interest rates around mid-2024. As a result, investors’ risk aversion is starting to ease. Meanwhile our main scenario is a relatively short, shallow soft landing for global economic growth. Yet we must also get through this late-cyclical phase, where there is a risk that the slowdown will be worse than expected. We are thus advocating a neutral risk level, since we see potential problems in the short term but good opportunities in the medium term,” says Fredrik Öberg, Chief Investment Officer at SEB’s Private Wealth Management & Family Office Division.

Allocation
During 2023, we have not applied recession portfolios but have instead maintained broad risk diversification with a neutral allocation between asset classes. This means that we have been helped by large US growth companies and the strong dollar, as well as by the positive momentum prevailing in Sweden among companies with lower-than-average valuations. We have gradually reduced this factor exposure, but we still have a slight overweight in portfolios that are not pure value portfolios. In our fixed income portfolios, we have extended our average maturity after previously maintaining a very short maturity. Our proportion of corporate bonds is slightly higher than in the index. We are overweight in fixed income investments at the expense of alternative investments and hedge funds in mandates that include the latter asset class. Illiquid investments come in many guises, and by definition they have a longer investment horizon − making them excellent complements to a traditional portfolio.

Theme articles
This edition of Investment Outlook also includes two theme articles:
•    GLP-1 is changing the world
•    Electricity markets and their price dynamics

You will find the full report, plus a video, at www.seb.se/investmentoutlookreport.

SEB is a leading northern European financial services group with international reach. We exist to positively shape the future with responsible advice and capital, today and for generations to come. By partnering with our customers, we want to be a leading catalyst in the transition to a more sustainable world. In Sweden and the Baltic countries, SEB offers financial advice and a wide range of financial services. In Denmark, Finland, Norway, Germany and the United Kingdom, we have a strong focus on corporate and investment banking based on a full-service offering to corporate and institutional clients. The international nature of SEB’s business is reflected in our presence in more than 20 countries worldwide, with around 17,500 employees. At 30 September 2023, the Group’s total assets amounted to SEK 4,134 bn while assets under management totalled SEK 2,194bn. Read more about SEB at sebgroup.com.

Media Contacts:

Fredrik Öberg
CIO, Private Wealth Management & Family Office, SEB
+46 70 767 6179
fredrik.oberg@seb.se

Niklas Magnusson
Head of Media Relations & External Communication
+46 70 763 8243
niklas.x.magnusson@seb.se

SOURCE: Skandinaviska Enskilda Banken AB