Economic Outlook August 2015

Reduced risk appetite in August due to uncertainty concerning economic growth in China. 

Equity markets across the world were volatile during the summer months. Of the main markets, Europe took the worst hit with the Bloomberg European 500 falling 10.3 per cent, June through August. Not far behind were Nikkei 225 and S&P 500 dropping 8.9 per cent and 6.9 per cent respectively in the same period. Oslo Stock Exchange fell 8.7 per cent. All numbers are in local currency.

The summer offered a lot of fuel to the bear investor. Even though the anxiety surrounding the Greek election and bailout package did not play out, the Chinese devaluation and fear of lower growth going forward did. Commodity prices and most emerging markets dropped sharply. Oil prices fell from just short of USD 65/br from end of May to USD 54.20 by the end of August. To the comfort for Norwegian investors with international exposure, the Norwegian krone depreciated by 8 per cent to the euro, and 6 per cent to the US dollar the past month.

We are likely to see continued volatility in financial markets. However, SEB believe that the fear of a sharp slowdown in global economic growth is overdone. The US economy is doing well with consumption continue to increase, sharp rise in construction sector activity and prolonged improvement in the job market. In Europe and Japan, weak currencies and aggressive monetary policies are helping to boost growth, though from relatively low levels. In China, however, recent numbers signal that the Chinese growth continues to lose speed. We still believe that China’s deceleration will be gradual and in a controlled fashion. In the latest Nordic Outlook, we reduced our global BNP prognosis marginally downward, but still foresee healthy global growth prospects for the next two years. 

We continue to favor Europe as we see most upside potential to market expectations there. We continue to state that the Norwegian krone is at low levels and investors should keep that in mind when making investment decisions. 

By Hans Kristian Hals, Head of Investment Strategy