Investment Outlook: Falling inflation will provide support during slump

16 mai 2023 08:23

China’s economy is gearing up as the rest of the world slows down into a brief, shallow recession in which corporate earnings will hold up well. The investor community is restrained and cautiously positioned, while the corporate sector is thriving and in good shape. Our main economic scenario foresees a slowdown in 2023 and an acceleration during 2024. We support a neutral allocation at the asset class level, combined with good risk diversification, since volatility is likely to persist.

“In this environment of positive and negative forces, since early autumn 2022 we have advocated a balanced approach, in which we have chosen the distinctly defensive portfolios that have been the consensus choice. Well-diversified portfolios with a rather neutral balance at the asset class level are still the recipe we suggest in a late-cyclical environment,” says Fredrik Öberg, Chief Investment Officer at SEB’s Private Wealth Management & Family Office Division.

Allocation

We are maintaining the view that it is wise to continue spreading risks across several different asset classes and sub-classes. In Swedish equities, we have reduced our holdings of pure value companies. In global equities we are overweight in large cap growth companies, which serve as a good complement to our Swedish equity portfolio. For the time being, we are also maintaining the partial currency hedging of the US dollar that we initiated last autumn. Unusually, our fixed income portfolios have a fairly neutral structure in terms of interest rate and credit risk. Our alternative investment holdings are living their own lives; as intended, they have a low correlation with our equity and fixed income portfolios. The overall result is unusually broad portfolios, which at the aggregate level have a neutral weight in equities combined with an overweight in fixed income investments at the expense of the proportion of alternative investments. This composition enabled us to earn positive returns last autumn and during the early-2023 rally, as well as to avoid losing ground when such unforeseen events as bank failures affected the market.

Theme articles

This May 2023 issue of Investment Outlook also includes three theme articles:

New supercycle on the way – in capital spending
Cracks in the façade, but a solid foundation – how Swedish banks are connected to the real estate sector
Why are alternative investments appealing?

Investment Outlook can be read in its entirety or as a 2-page summary at www.seb.se/investmentoutlookreport, where a web video is also available.