Economic Outlook November 2015

Another positive month for equities

After a very strong month of October, markets calmed down in November. Still, most of the main markets delivered positive return for the month. S & P 500 had a basically flat month of 0.30 per cent. Bloomberg European 500 and Japans Nikkei 225 rose by 2.85 per cent and 3.48 per cent respectively. Oslo Stock Exchange was up 2.24 per cent, despite the fact that the oil price was down nearly 10 per cent last month. The volatility continued on the currency market where the euro depreciated 4 per cent to the US dollar. Norwegian kroner gained 1.6 per cent to the euro, but lost 2.5 per cent of its value against the Greenback.

Globally we see a strong trend of increased importance of service sectors, while traditional manufacturing become less significant than it has been traditionally. SEB is optimistic on global growth for the next two years, however, we believe that manufacturing will continue to lose ground. Not long ago, investors feared a hard landing in China. This seems not to materialize, however, the economy is shifting course and services are increasing its significance on behalf of manufacturing. In fact, the Chinese service sector is now bigger as a proportion of GDP than manufacturing. In the US manufacturing accounts for only about 15 per cent of GDP. In both countries, retail sales and consumer confidence show strong readings. We expect this trend also to affect investor behavior.

Third quarter company reports were unimpressive. However, stock markets held up firm, even though individual companies were severely punished if results and/or guiding did not live up to expectations. Even though it is widely expected that Federal Reserve will hike its key interest rates at its meeting in mid-December, global central banks are expected to continue to deliver expansionary monetary policy for the foreseeable future.

In an environment with low interest rates, support from central banks and prospects of healthy global growth for the next two years we continue to favor equities. Within equities we still prefer Europe and Asia. From a Norwegian investors perspective we would be cautious of taking on too much currency risk. The Norwegian krone is very weak and the tides may change fast. As we move into next year, we are anxious to see companies deliver top line growth. It is a crucial factor for the stock market to continue its upward trend.

By Hans Kristian Hals, Head of Investment Strategy