Pohjola Pankki Oyj : Pohjola's analysts: Yielding returns in a slow growth
There is a fragile global economic recovery underway. Emerging economies, led
by China, will once again remain the main engines of global economic growth
while developed countries will plod along. The US economy will slow to around
2% and the euro area expects zero growth. The fiscal policy is still a drag on
growth in developed countries. Fiscal policy adjustment has advanced more in
the euro area than in the USA. The current extremely easy global monetary
policy will help compensate for the negative effects of fiscal policy on
- In asset allocation, we will overweight equities and corporate bonds and
underweight government bonds. Our recommendation for the allocation of
commodities is close to neutral. According to the analysts, the recommendation
is affected by reasonably positive attitude to risk appetite, return potential
in equities supported by accelerating profit growth and dividends,
expectations of higher long-term rates in the USA and the higher return/risk
potential of high-yield corporate bonds in dollars than bonds in emerging
The overweight equity exposure is justified by the fact that the gradual
global economic recovery will give some support to companies' profit
performance. Companies in Europe and the USA are revising down their profit
forecasts to a lesser extent.
- Stocks have gained considerably but the continued decline in equity risk
premiums as the euro crisis eases, declining trend of corrections to negative
forecasts and low return expectations of alternative investments argue for our
positive view of equities, explains Jarkko Soikkeli, Equity Strategist.
- Our favourite sectors for early 2013 are energy, consumer goods and
construction. When it comes to other sectors, we take a more cautious view of
media, forest industry and healthcare. Our favourite stocks for early 2013 are
Metso Corporation, Metsä Board, Neste Oil Corporation, Nokian Tyres Plc and
YIT Corporation. At the same time, we recommend avoiding the following stocks:
Orion Corporation, Pöyry PLC, Sanoma Corporation, Tieto Corporation and
UPM-Kymmene Corporation, continues Soikkeli.
In the bond market, Pohjola's analysts expect the Riksbank to cut its key rate
twice by 25 basis points and the ECB once by 25 basis points. Economic
fundamentals in both Sweden and the Eurozone also argue for lower money market
rates and short swap rates. With respect to long-term rates, the greatest
upward pressure is on US interest rates. According to the analysts, the
recommended duration in the Eurozone is seven years.
- We expect corporate bonds to continue to gain momentum and risk premiums to
continue to decline moderately. In our asset allocation recommendation, we
shift to an overweight in high-yield bonds and, to a moderate extent,
Investment Grade bonds. We recommend maturities of over three years. When it
comes to Finnish corporate bonds, our view is that Nokia Corporation and
Nokian Tyres Plc exhibit the most attractive the risk/return potential, says
Jukka Ruotinen, Head of Fixed Income and FX Research.
- Although we believe that the euro will strengthen against the US dollar in
the long run, we expect the currency pair to weaken in the next few months,
sent down by lowering euro rates. We also expect heightening expectations of
interest rate cuts to weaken the Swedish krona. In the meanwhile, the Russian
rouble will benefit from higher crude oil prices and the stabilisation of
Our favourite commodity is crude oil due to geopolitical risks and the
constrained demand/supply picture. A positive macroeconomic sentiment is also
a driver for movements in crude prices. It is possible of investors to benefit
from this because the forward curve for crude oil market price development is
declining. The change of power in China will, for its part, foster
developments in investments in the country and thus demand for base metals
too. Pohjola's analysts keep, however, commodity allocation neutral because of
the risks associated with the prices of natural gas and agricultural products.
For more information, please contact:
Jarkko Soikkeli, Equity Strategist, tel. +358 (0)10 252 8685
Jukka Ruotinen, Head Fixed Income and FX Research, tel. +358 (0)10 252 2792
Jarkko Soikkeli and Jukka Ruotinen will discuss capital markets in OP-Pohjola
Nyt (OP-Pohjola Now) broadcast on 28 January 2013, starting at approximately 2
pm at op.fi > OP-Pohjola-ryhmä > Uutishuone
Pohjola Bank plc
Pohjola is a Finnish financial services group which provides its corporate and
institutional customers with a diverse range of banking, non-life insurance
and asset management servicesand private individuals with an extensive range
of non-life insurance and private banking services.
Pohjola Bank plc (Pohjola) is part of OP-Pohjola Group, the leading financial
services group in Finland.Pohjola acts as the Group's central bank and is
responsible for the Group's international operations.OP-Pohjola Group consists
of over 200 member cooperative banks and the Group's central institution,
OP-Pohjola Group Central Cooperative, with its subsidiaries and
closely-related companies, the largest of which is Pohjola.
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Source: Pohjola Pankki Oyj via Thomson Reuters ONE
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