A favourable economic situation combined with continued key interest rate cuts will provide a good base for equity and fixed income markets. Protectionism, proposed tariff hikes and a messy geopolitical situation are among prevailing risks. Investors are optimistically positioned, which is apparent from valuations of financial assets. We believe that the net balance of opportunities vs risks remains positive. This is reflected in our portfolios, which are overweight in equities as opposed to fixed income investments. The equity portfolio is dominated by US and Swedish exposures. Our fixed income portfolio has a robust composition that can withstand negative surprises, since we have a duration a bit longer than indices and an underweight in high yield bonds.

"Once again, investors have gone from being very negative about risk to clearly overweighting risk assets. This time it took two years, and the turnaround began around the same time as inflation peaked globally. Today, risk appetite is significantly higher. This is also reflected in valuations," says Fredrik Öberg, Chief Investment Officer at SEB's Private Wealth Management & Family Office Division.

Overweight in risk assets
The drivers that we expect to benefit risk assets going forward include stable and healthy economic conditions, which should gradually encompass more cyclical dynamism. This should happen as key interest rates continue to be lowered and capital spending increases. Several powerful structural forces will also continue to operate, such as AI and general digitisation, electrification and automation. If the economy stabilises and broadens thanks to several parallel drivers - despite the threat of higher tariffs - we may also see more evenly distributed returns in the stock market. It remains to be seen whether this is wishful thinking or whether it will become a reality. One sign that this could happen is that we are now seeing smaller gaps between 12-month earnings forecasts and earnings outcomes for the past few years. This is true on both a regional basis and at the sectoral level.

Before we see signs that this is starting to materialise, we will maintain our overweight in global equities vs Swedish equities. In global equities, we are overweighting the US compared to the rest of the world. We favour equities over fixed income investments, although this overweight is moderate. In fixed income investments, we have a somewhat longer duration than in our benchmark indices, and we have a certain underweight in high yield bonds due to tight credit spreads. In portfolios that include liquid alternative investments, such as hedge funds, we underweight these compared to fixed income investments.

Theme articles
This November 2024 edition of Investment Outlook also includes two theme articles:
·     The ASEAN countries - Asia's "forgotten" jewels?
·     AI redraws the map - Which Swedish companies can benefit?

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