Pohjola Pankki Oyj : Pohjola's analysts: The euro-zone is showing signs of life

  Pohjola Pankki Oyj : Pohjola's analysts: The euro-zone is showing signs of

Press Release 12 September 2013

The world economy continues its faint recovery. The greatest positive
surprises during the current year have come from Japan and the euro area.
Euro-area GDP rebounded, driven by Germany, as early as the second quarter of
2013 and business barometer surveys among the corporate sector suggest that
growth will gain momentum towards the year end. Emerging economies have shown
markedly weaker-than-expected growth but the BRIC economies have shown signs
of stabilising growth right during the last few weeks, with the exception of

- The improvement in the world economy and, in particular, the euro-zone
economy will support risk-taking although monetary and geopolitical
uncertainties still cast a shadow on the outlook. Our risk indicator is still
at a high level and returning from that level has, however, historically
generated the best returns. So, we are now taking a positive view of equities,
High Yield corporate bonds, emerging-market bonds and commodities, state the

- When it comes to equity markets, we take the most positive view of European
equities and we believe that the profit forecasts of the related companies
react with a time lag to the turn for the better. We consider any potential
turbulence to provide a good opportunity to increase equity risk. A
substantial increase in interest rates has added fears of whether equity
valuations are on a solid basis. On the basis of the previous interest rate
cycles, it is, however, difficult to conclude that the recent rise in real
interest rates would threaten development in equity markets. The sector
rotation underway will probably support equity prices particularly in cyclical
industries and the financial sector where predicted profitability is the
weakest of all relative to the historical level, says Jarkko Soikkeli, Equity

- In Finland, our favourite sectors include the financial sector, the capital
goods sector, the consumer goods sector and the construction industry. We take
a more cautious view of the IT sector, the forest industry, the consumer
non-durables sector and the media industry. Our favourite stocks for the rest
of 2013 include Cargotec Corporation, Cramo Plc, Nokia Tyres plc, Outotec Oyj
and Sampo plc. At the same time, we recommend avoiding the following stocks:
Caverion Corporation, Kemira Oyj, Lassila & Tikanoja plc, Sanoma Corporation
and Stora Enso Oyj, continues Soikkeli.

Pohjola's analysts expect the September Fed Board meeting (on 18 September) to
decide on scaling back quantitative easing in fixed-income markets. In
fixed-income markets, particular interest is, however, directed to the Fed's
interest rate forecasts for 2016 because the Fed can use them to present a
strong argument against the optimistic future path of interest rates felt in
the market. The analysts expect the ECB to conduct long-term refinancing
operations (LTRO) towards the year end in response to the drain of excess
liquidity within the euro system. According to the analysts, the recommended
duration in the euro zone is five years.

- Although we do not expect interest rates to any longer continue to increase
during the rest of the year, in the current environment we favour High Yield
corporate bonds due, for example, to the protection their risk premiums give
against interest rate swings, says Jukka Ruotinen, Head of Fixed Income and FX

Foreign exchange markets will see the biggest movements in the currencies of
emerging economies and we expect, for example, the Russian rouble to gain
strongly against the euro as global economic growth stabilises. Our view of
the euro's weakening against the US dollar is based on the expectation of the
interest rate differential moving against the euro and of fading positive
economic surprises in the euro area. Following the difficult first half of
2013, prospects for commodities are considerably brighter because demand for
base metals, for example, will be boosted by the accelerating global economic

For more information, please contact:

Jarkko Soikkeli, Equity Strategist, tel. +358 (0)10 252 8685
Jukka Ruotinen, Head of Fixed Income and FX Research, tel. +358 (0)10 252 2792

Pohjola is a Finnish financial services group which provides its customers
with banking, non-life insurance and asset management services. Our mission is
to promote the sustainable prosperity, security and wellbeing of our
customers. Profitable growth and an increase in company value form our key
objectives. Pohjola Group serves corporate customers in Finland and abroad by
providing an extensive range of financial, investment, cash-management and
non-life insurance services. We offer non-life insurance and private banking
services to private customers. Pohjola Series A shares have been listed on the
Large Cap List of the NASDAQ OMX Helsinki since 1989. The number of
shareholders totals around 32,000. Pohjola's consolidated earnings before tax
came to 374 million euros in 2012 and the balance sheet total amounted to 45
billion euros on 31 December 2012. Pohjola is part of OP-Pohjola Group, the
leading financial services group in Finland with over four million customers.



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Source: Pohjola Pankki Oyj via Thomson Reuters ONE
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