SEB: New, more stable phase has begun in economy, markets

Photo: Mihkel Maripuu

Economic growth will have a positive influence on stock markets this year and a new, more stable phase has begun for markets and the economy in general, SEB banking group predicts in its fresh outlook.

The coming period probably represents a better equity investment climate than recent years have offered, SEB's chief investment officer Hans Peterson says in the report.

The most recent data have provided a picture of a stronger economy, especially in the United States and China. Given the size of these countries, their macroeconomic statistics send important signals for the entire world, and good statistics have a stabilizing effect on the global economy.

Valuations have risen in stock markets due to the sharp price upturn that prevailed early in 2013 and today there is no obvious discount, SEB says. From now on, market performance will be driven by earnings growth. The latest movement in the spreads between corporate and government bonds indicates reasonable valuations.

"In our view a new and in a certain sense more stable phase has begun in the global economy," Peeter Koppel, private banking strategist with the Estonian unit of SEB, said in the bank's press release. The problems of the developed world persist but economic policy steerers, in particular central banks, have succeeded in changing the crisis from volatile to chronic.

"As strange as it may seem, this means certain stability. In the developing world, Asia in particular, we can talk about economic growth. Combining a generous monetary policy and a degree of stability in the developed world with Asian growth, we get a context where further movement towards higher risk investment is justified. Against such a backdrop equities look like an interesting investment," Koppel said.

In his words, stocks are at present the most interesting asset class. "Global economic outlooks are improving, price levels are reasonable and there is enough liquidity in markets. Given that risk premium on equities remains very high, there is an above average probability that this asset class will provide historically good returns from their current price levels," Koppel said.

On the other hand, risk premium on quality government bonds is very low, so government bonds are more likely to provide historically poor returns from their current price levels, he said.