Our market view
Since the last issue of Investment Outlook, the market climate has changed drastically. Optimism has been replaced by uncertainty and sharp volatility, with a clear turning point in early April when the US unveiled a new, confrontational tariff policy. Confidence in the American economy and policies has been shaken, leading to capital shifts away from the US to other countries, a falling dollar and weaker US stock markets. Meanwhile, the Swedish krona has appreciated, which has negatively impacted returns on global assets measured in SEK. Tariffs and geopolitics are slowing global economic growth, especially in the US and China, while interest rate cuts and stimulus measures, especially in Europe, are having the opposite effect. Earnings estimates are being pushed lower, and investors’ risk appetite has declined. Despite some stabilisation, an uncertain global picture remains. We continue to see elevated risks in the short-term market situation.
Our portfolio
Because of the current uncertainty, we are avoiding large risks and are instead keeping the portfolio close to normal – with an even allocation between equities, fixed income and liquid alternative investments. In equities, we have a balance between Swedish and global stocks, with US growth companies offsetting Swedish value stocks. In the fixed income sub-portfolio, we have a slightly longer duration and an underweight in high yield bonds in favour of more stable bonds. Our hedge fund exposure contributes to stability, especially in today’s market climate. We regard keeping our portfolio close to normal as responsible, but at the same time we are actively looking for the next possible change as the market situation develops.
Equities and valuations
In local currencies, world stock markets have shown marginal changes, but Swedish investors have suffered losses as a consequence of krona appreciation. Uncertainty about the scale and impact of tariffs has contributed to lower earnings forecasts, especially in Europe. Meanwhile, US growth companies, mainly in the tech sector, are showing continued strength. Europe will benefit from new public investment packages. Their effects will be delayed, but value companies should be able to benefit. In the Nordic region, the market is under pressure from the same uncertainty, with clearly lower earnings forecasts. Nordic stock markets are attractively valued, and we see good recovery potential. But there is great uncertainty, and these markets will be strongly affected by political developments.
Risks
There are many unanswered questions that make the risk situation unusually complex. Are we in a period of transition, where the world order is changing for many years to come, or are we seeing adjustments within the current system? The answers are still uncertain, and this affects many of the risks we try to assess in our forecasts and portfolios – questions such as whether US policies will lead to recession, whether tariffs will erode corporate margins, whether uncertainty will make both businesses and consumers more passive, and whether the world will become more divided and de-globalised are crucial. The future of the dollar as a reserve currency and whether these changes are temporary also play a major role. Although our main scenario includes no recession and predicts interest rate cuts, the complex risk situation is one reason we are limiting our risk-taking.
