TACTICAL ASSET ALLOCATION MONTHLY March 2016

In this number: REFLECTIONS OUR ALLOCATION NORDICS -Sweden -Norway -Finland -Denmark The Nordic reporting season EUROPE US JAPAN EMERGING MARKETS -Asia -Eastern Europe -Latin America ASSET CLASSES -Equities -Nordic fixed income -Global fixed income -Alternatives --Hedge funds --Real estate --Commodities --Currency TABLES IMPORTANT INFORMATION

2 3 3 4 4 5 5 6 7 8 9 9 10 10 10 11 11 12 14 17 17 17 17 18 19 21

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This document contains information and considerations that analysts, strategists and portfolio managers at Alfred Berg use as a base for handling portfolios and mandates. This document has been prepared for information purposes only and does not constitute 1) an offer to buy or sell, or a solicitation to buy or sell any such securities or financial instruments mentioned in this document or 2) investment advice. More important information can be found in the end of this document.

REFLECTIONS

believe the FED will want to avoid.

If the tension in the financial markets reached the crescendo in February remains to be seen. There are a lot of remaining obstacles to be concerned about going forward. In March we, and the markets, look forward to ECB presenting new measures to restore confidence after the failure in December, although then providing the additional support expected. There are a lot of analysis out there on what could and should be done, leaving Mr. Draghi in an awkward position. Will he and the ECB be able to fulfil the wishes from the markets? Not very likely in our opinion! Sure, there will be several technical manoeuvres trying to sweet-talk the market, but it all boils down to this – does the market think it will create a credible ground for future growth?

The G20-meeting in Shanghai on the 26-27/2 did not bring any clarity on joint supportive measures. Although the joint statement said to urge member states to use “all policy tools” availble to support global growth. This means that the markets will be even more focused on upcoming datapoints as well as on the centralbank meetings.

One has to remember that Mr. Draghi on several occasions have urged for supportive fiscal policy measures to accompany the accommodative monetary policy. This is not an easy task within EU, with its very different member countries. But it is also a global problem. Most market participants have obviously not credited Mr Abe’s policy in Japan as enough trustworthy to bring any lasting momentum into the Japanese economy. This leaves us to our second interest point for March, the BoJ-meeting. Having just recently delivered additional QE we find it hard for BoJ to come up with any new magic’s to help restore any shorter term doubts. It is still a matter of having fiscal and monetary policy work in tandem. Our third focus-point will obviously be the FEDmeeting on March 16th. Judging from market pricing it is consensus they will not hike this time. What the dot-plot is saying on hikes and what the market expects is presently very far from aligned. So a hike from FED would not be a move that the markets expects and therefor probably something they would dislike. And bringing more turbulence to the market is something we

Our call to overweight equities vs fixed income on January 22nd was taken on the back of: 

Oversold markets



Additional policy support (BoJ (actual) and ECB (verbal))



Slightly more valuations



Unjust overreaction on recession-fears

attractive

equity-

Have any of the above bullet-point really changed? 

Well markets only briefly strengthened before back-firing again. During the last week of the month the markets strengthened again ending slightly higher than January 22nd. This means that it is not oversold anymore.



Additional support will probably be provided by at least ECB during March. Will it suffice? Probably not.



On valuation it has actually marginally increased.



And we still believe recession is not a clear and present danger.

We will leave the allocation unchanged for now but are prepared to decrease risky assets, if markets worsen again. We expect hard data to soon alleviate growth concerns although forward looking surveys will probably be inflicted by the turmoil last 2 months.

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This document contains information and considerations that analysts, strategists and portfolio managers at Alfred Berg use as a base for handling portfolios and mandates. This document has been prepared for information purposes only and does not constitute 1) an offer to buy or sell, or a solicitation to buy or sell any such securities or financial instruments mentioned in this document or 2) investment advice. More important information can be found in the end of this document.

Equities (MSCI World) vs bonds (JPM Global Bonds)

Our changes this month Upgrades: We are not making any upgrades. Downgrades: We downgrades either.

are

not

making

any

NORDICS – remarkable resilience

Source: Bloomberg, Alfred Berg.

Allocation – March 2016 Asset allocation

--

-

0

+

++ Change

0

10% +

20% ++ Change

Equities Fixed income Cash Alternatives Regional equities

-20% -10% --

Nordics - Finland - Norway - Sweden

Europe USA Japan Emerging Market - Latin America - Asia - Eastern Europe Fixed Income

--

-

0

+

++ Change

All Nordic economies except for Sweden have decelerated in Q3 and Q4 last year. Weaker global demand, financial turbulence or falling oil prices have to different extent dragged down growth in these countries. For Sweden the ultralight economic policy in combination with fiscal stimulus from the explosion in intake of refugees lifted domestic demand and overall growth. Inflation has been subdued the last couple of years reflecting lots of slack in most Nordic economies except Norway where the previously buoyant oil sector held up demand and capacity utilization. Looking forward the subdued inflation is not likely to remain low as core inflation is starting to rise in most countries. The rise in inflation is likely to go gradual but will hold back the current strong real income growth for households. Exports and the manufacturing sector remains in fallow since global manufacturing demand are in recession. Sweden sticks out in this respect as its exports and manufacturing activity is starting to revive, mainly due to the aggressive monetary policy aimed to weaken the Swedish krona something that disfavors its competitive neighbors, especially Finland.

Government Bonds Nordic Gov Bonds

Investment grade US Investment Grade EU Investment Grade Nordic Investment Grade

High Yield US High Yield EU High yield

Overall, the Nordic, as an aggregate, has been unexpectedly resilient to the weakness in global demand during Q3 and Q4. This applies especially to Sweden and Norway (given the circumstances with plummeting oil prices) while Finland and Denmark has faced more headwinds.

Nordic High Yield

E. M. bonds EM Local Currency EM Hard Currency EM Corp

Source: Alfred Berg. As of 2016-02-29.

3 This document contains information and considerations that analysts, strategists and portfolio managers at Alfred Berg use as a base for handling portfolios and mandates. This document has been prepared for information purposes only and does not constitute 1) an offer to buy or sell, or a solicitation to buy or sell any such securities or financial instruments mentioned in this document or 2) investment advice. More important information can be found in the end of this document.

Nordic inflation, -16y

entering a period of boom and bust where bust would be about three years ahead, in a normalized cycle. Swedish bottlenecks

Source: Macrobond.

Sweden – Picking up speed The Swedish economy has outperformed most other countries in the developed world. Ultralight monetary policy has, last fall, been accommodated by expansive fiscal policy due the spike in immigration. Growth estimates for this year are almost 4 percent, well above estimates for the Nordics, the Eurozone and the US. Most indicators show that the surprisingly strong growth is likely to continue. However, the rosy picture does not come without risks. Negative yields have pushed up real estate prices and demand for credits to new highs, the strong employment growth is starting to generate bottlenecks. We believe that oil prices have bottomed out as well as bond yields, which means that base effects now predict higher inflation. The rise is likely to be gradual but the emergence of bottlenecks adds to the risk of a somewhat faster pick-up in inflation than the Riksbank expects. We do not expect that the Riksbank will hike rates any time soon as they want inflation to overshoot the target. They are though likely to stop cutting rates and trying to weaken the currency if inflation surprises on the upside. The weak situation and deteriorating support for the Swedish government has increased the risk for a snap election. SD, the opposition party with the possibility to put forward a confidence motion to the current government has offered to do just so. The political uncertainty is likely to postpone structural reforms and lead to more stimulating fiscal policy. Sweden may be

Source: Macrobond.

Norway – Gearing down Momentum in the Norwegian economy has weakened significantly last 1.5 years after the decline in oil prices began. The oil-price slump led to extensive cutbacks in the oil sector which have spread to the rest of the economy through several channels such as lower activity in oil related investments and deteriorating public finances. The government has conducted an accommodative policy by adding fiscal stimulus, and the central bank has lowered interest rates weakening the Krona by approx. 20 percent. The weakening will substantially help the export sector. Oil prices have continued to surprise on the downside, something that is likely to have a moderating influence on investments in the near term. However, there is a delayed effect on the economy as it leads to a general weakening of confidence among businesses and households. We though anticipate that oil price has bottomed out something that alleviates some of the headwinds for the Norwegian economy. The biggest risk for the Norwegian economy is if households reduce their consumption proneness, so far they have been pretty resilient. Weaker optimism and higher inflation

4 This document contains information and considerations that analysts, strategists and portfolio managers at Alfred Berg use as a base for handling portfolios and mandates. This document has been prepared for information purposes only and does not constitute 1) an offer to buy or sell, or a solicitation to buy or sell any such securities or financial instruments mentioned in this document or 2) investment advice. More important information can be found in the end of this document.

due to the currency weakness may cause households to be more cautious. So far this remains a risk rather than the main scenario.

Better times ahead

Core inflation in Norway & Sweden

Source: Macrobond

Denmark – Labor market improving Source: Macrobond

Finland – Doing the right thing - again The Finnish economy continues to be weak. Growth has been disappointingly weak during the second half of last year, something that has risen concerns that the economy may have entered its fifth recession since 2008. Exports is squeezed by the Russian recession and competitiveness issues with neighboring countries such as Sweden and Norway who have let their currencies depreciate substantially. The current austerity policy has pressured households and businesses. The government has embarked on an ambitious reform program where the fiscal deficit should be cut by 2 percentage points and the number of working days should increase through cutting vacations and delaying the retirement age.

Denmark has had a very weak second half of 2015, although growth is likely to rebound somewhat in Q4 it’s mainly due to the very weak Q3 hence does not change the view that the economy is decelerating. One of the bright spots have been the improvement in the labor market, which has raised expectations of higher domestic demand but so far this has not materialized as expected. Despite of this, household consumption and domestic demand are the main drivers behind the moderate Danish growth. Although the key drivers are in place for a solid recovery, growth has disappointed. This development is similar to many other countries and reflects a combination of a hesitant corporate sector due to the recession in the manufacturing sector and households and banks that still consolidate its balance sheets and therefore are hesitant to benefit from the very low interest rate.

On the positive side is that exports are expected to increase in the future and that stimulus from the low interest rates and political reforms eventually will improve competitiveness.

5 This document contains information and considerations that analysts, strategists and portfolio managers at Alfred Berg use as a base for handling portfolios and mandates. This document has been prepared for information purposes only and does not constitute 1) an offer to buy or sell, or a solicitation to buy or sell any such securities or financial instruments mentioned in this document or 2) investment advice. More important information can be found in the end of this document.

Forward 12m p/e, -16 years

Source: Macrobond

Valuation Nordics: The valuations in the Nordics are trading slightly above its 5-year mean. On an average of 14 the Nordics are now trading at around 15. In April last year valuation almost touched 18, which clearly was in the high end. This means that valuation is somewhere in between and in itself is neither a headwind nor a tailwind. Amongst the Nordics Finland and Sweden are at their 5-year averages whereas both Denmark and notably Norway is trading well above long term averages. Looking at earnings expectations Norway stands out with collapsing expectations, whereas Finland have held up the best. Conclusions from the reporting season and expectations going forward I asked our esteemed portfolio managers a follow-up on the reporting-season, something that was initiated last month. Here is what came out: How were the results in absolute terms (compared to last year’s numbers) and relative (against the analysts)? How on average did the market respond to the reports. Compared to previous year’s results, the Q4 result season for Finnish companies was a mixed bag. Some industrials and materials companies are seeing heavily declining top-lines and earnings, while for example some consumer goods companies are improving. Company specific factors also account for a lot of the

changes, emphasizing the need to know the companies instead of investing in sectors. Consensus expectations had been declining since the market turbulence began in the autumn, but not sufficiently for the earnings level that was realized. In other words, the actual sales were roughly in line with expectations, but there were many earnings misses. The market declined through the result season. Especially companies with a miss in dividend were punished by the market. In general reporting season in Sweden was OK as earnings expectations ahead of the reports have come down. Approx. 50 percent of the reporting companies beat both on revenues and EBIT, while we saw approx. 40 percent missing out on EBIT. In general market responded very strongly in all directions. Earnings beats was heavily rewarded and earnings misses was severely punished. Dividends were in focus where companies lowering or missing out on market’s expectations were heavily punished. In Norway sales have been rather in line, whereas earnings have missed heavily on the downside. Anything relating to the oil industry obviously have painted a dull future with lowered investment in the foreseeable future. Other export related companies have on the back of a lower krone reported a much brighter future, making the Norwegian stock exchange a two tired market. What, if any, did the companies say about 1) domestic markets 2) global markets? Fewer and fewer companies are giving a guidance for the year ahead. The domestic markets are expected to remain challenging (Finland, Norway), and improvements in earnings will be generated by companies own cost cutting actions. Same trend applies to global markets: companies are expecting a flat or slightly growing topline and earnings improvement will arise from their own initiatives. In general, the Swedish companies reported flat to weak outlooks, however with a solid domestic demand as a counter-balance. Global market expectations were either considered flattish or slightly soft, something that was well anticipated in the market.

6 This document contains information and considerations that analysts, strategists and portfolio managers at Alfred Berg use as a base for handling portfolios and mandates. This document has been prepared for information purposes only and does not constitute 1) an offer to buy or sell, or a solicitation to buy or sell any such securities or financial instruments mentioned in this document or 2) investment advice. More important information can be found in the end of this document.

Is there a consensus on prospects for 2016 that can be drawn from the reports? Seems like 2016 will be very difficult for many of the Finnish materials and industrials companies, with the exception of those connected to the pulp and carton-board markets. Most probably the biggest events for Finnish companies this year will arise from takeovers, mergers or other restructuring, as topline growth will be nonexistent and the low-hanging fruits have already been picked in terms of cost savings. In Sweden the companies continue to put forward weak global demand, counter balanced by strong expectation in domestic markets, driven by strong construction demand and consumer demand. Do you think the estimates for 2016 are accurate or to high/low? Here the portfolio managers unanimously responded that history is the best indication for the future, in that they believe the estimate once again to be to high also this year, as have been the case since 2007, with few exceptions. On Eastern Europe & Russia our PM reported these interesting insights: Russian companies publish results late, only a few so far, the majority will report in March. Expectation is -43 percent EPS decline for the market in 2015. Earnings outlook 2016 is very uncertain since the price of oil will affect all companies through the Ruble which follows the oil price. Interestingly the oil companies will have the least volatile earnings since the tax system is constructed as a cushion. Financials will benefit the most earnings wise if the oil (and Ruble) strengthens. In Turkey we have seen rather strong results, banks have reported in line or above consensus, in 2016 expectations for the sector is +20 percent EPS growth. For the market as a whole the expected EPS growth stands at +15 percent vs +7 percent in 2015. CEE: Poland had a decent year in terms of earnings growth, +19 percent, after strong GDP growth but 2016 looks tougher, -11 percent expected. Main reason is massive tax increases imposed by the new government. In Hungary,

which was the star performer in the region 2015, EPS was constantly upgraded during 2015 after some constructive initiatives from the government like lower taxes etc. EPS 2015 came in at + 69 percent and 2016 is expected to deliver another 28 percent EPS growth. In general, the PM adds that earnings are not what’s driving these markets currently, geopolitical issues and commodity prices a far more important and there is a high degree of uncertainty in all forecasts.

EUROPE – ECB to add stimulus Growth in the Eurozone economy has decelerated during the pace of last year but still remains relatively resilient to the weakness in global growth mainly coming from the slowdown in Emerging markets and weaker US growth during the second half of last year. Eurozone growth peaked in Q1 slightly above 2 percent in annual pace and grew by around 1 percent in Q4. The main driving force for the Eurozone economy was domestic demand. Households have as in most of the developed world benefitted from low inflation and plummeting oil prices. The labor market has also revived and the ultra-low interest rate environment has finally lifted credit growth to positive numbers. Still the latest worries about Eurozone banks are a great concern for the markets. The back side of low interest rates are that banks profit margins are pressured hence they have a hard time to meet the higher capital ratio demands from the European central bank. There is a risk that these worries will cause banks to reduce their credits in order to consolidate their balance sheets. Such a move would be negative for growth in the Eurozone. Industrial production in the Eurozone is weak which shows that the region is not immune to weakness in emerging markets, let alone to a wavering U.S. economy as in the second half of last year. Then again, new order intake has improved. New orders are trending upwards, both from within and outside the Eurozone. All in all, the state of the economy does not warrant the jittery markets we are witnessing last few weeks.

7 This document contains information and considerations that analysts, strategists and portfolio managers at Alfred Berg use as a base for handling portfolios and mandates. This document has been prepared for information purposes only and does not constitute 1) an offer to buy or sell, or a solicitation to buy or sell any such securities or financial instruments mentioned in this document or 2) investment advice. More important information can be found in the end of this document.

Markets expect the ECB to make some sort of stimulus on its next meeting in March. President Draghi communicated in his last meeting that a policy review in March will be done if data continue to be weak. We believe the latest market turbulence will ensure that he delivers something on his promises, if not the ECB knows that equity prices will take another dive and that may further down cause households and corporates to delay its consumption and investments. Furthermore the current low inflation allows/demands further stimulus. Unemployment vs average earnings

suppressed growth especially in Q4. The first part of this year the economy has rebounded and growth is expected to have grown well above 2 percent in Q1, which is a considerable upswing from the 0.7 percent expansion in Q4. Private consumption, otherwise the motor of the economy, moderated in Q4 despite firm growth in income as households choose the more careful stance and increased their savings. The US economy expanded 2.4 percent for the full year 2015, which matched 2014’s growth, and expectations are that growth this year will end up in that region. The manufacturing sector has been in recession for a while dragged down by the weakness in global manufacturing growth and the stronger dollar. The key variable that affects both real economy and financial market mostly this year will be how much further unemployment can fall without causing wages to accelerate.

Source: Macrobond

Business survey’s trending strongly

In January unemployment dipped below 5 percent, such a low number has not been seen since before the Lehman crisis. Some indicators (NFIB) point to that wage growth is increasing, but still the broad employment cost indicator behaves well. More worrisome is that most inflation measures are pointing up, headline has risen from zero to some 1 percent and core is above 2 percent. The FED is expected to be very careful with its rate hikes, something that are a consequence of the latest financial turbulence but fits bad with old proxies that says that if the economy is at full employment policy rates should be between 3-4 percent and not closer to zero as right now.

Source: Macrobond

US- Rate hikes delayed The US economy has recovered from the weakness in Q3 and Q4. The weakness in the second half of 2015 was mainly due to a slump in fixed investment as energy firms reacted to low oil prices and a collapse in export growth due to a strong dollar. Also inventory liquidation

8 This document contains information and considerations that analysts, strategists and portfolio managers at Alfred Berg use as a base for handling portfolios and mandates. This document has been prepared for information purposes only and does not constitute 1) an offer to buy or sell, or a solicitation to buy or sell any such securities or financial instruments mentioned in this document or 2) investment advice. More important information can be found in the end of this document.

PMI Manufacturing, -8 years

substantial budget deficit. Abe has therefore been forced into a bad position where the only way out is to launch substantial structural reforms, which has got a blow from Amari’s resignation, and lift optimism and free resources. Unfortunately, the government seems to lean towards further monetary stimulus who’s effectiveness are limited given that the central bank’s balance sheet already are the world’s largest and the yen has depreciated substantially the last two years.

EMERGING MARKETS – outlook still weak Worries of a slowdown in China and concerns about the slow implementation of economic reforms in India dimmed the outlook for the region. Source: Bloomberg, Macrobond

JAPAN – A bit stuck After rebounding in Q3 on stronger-thanexpected dynamics in investment, GDP fell into negative territory in Q4 as private consumption was weak and manufacturing activity was less robust than in Q3. On the positive side is the low oil price which is important as Japan is a heavy importer of oil especially after the nuclear disaster that caused them to close most of their plants. In the political arena, Prime Minister Shinzo Abe faced his most serious challenge since taking office in 2012: Akira Amari, Minister of State for Economic and Fiscal Policy, resigned on 28 January due to corruption allegations. Amari was key to Abe’s Trans-Pacific negotiations and to progress with the third arrow, structural reforms. The scandal is a blow not only for Abe’s reform agenda but also risks giving him negative publicity. The failed attempts to lift inflation and the moderate growth are a disappointment. Both inflation and growth has been stuck around zero for most of 2015, the yen has been stable both against the USD and trade weighted which should not be any major problem as it has depreciated by 25 percent the last three years.

In Eastern Europe the continued fall in oil prices has deteriorated situations in Russia which has been forced to sell public corporates in order to finance its large public deficit. Private consumption took a hard hit due to the steep depreciation of the Ruble and the subsequent spike in inflation, which caused real wages to deteriorate. In Latin America economic fundamentals continue to deteriorate. Growth was negative for the full 2015 and the last part of 2015 activity deteriorated rapidly. The biggest economy, Brazil has mounting economic problems that drag down the region. Forward earnings & forward p/e, -5 years

Source: Macrobond

The weak economic performance puts a stop to the plans to tighten fiscal policy and reduce the

9 This document contains information and considerations that analysts, strategists and portfolio managers at Alfred Berg use as a base for handling portfolios and mandates. This document has been prepared for information purposes only and does not constitute 1) an offer to buy or sell, or a solicitation to buy or sell any such securities or financial instruments mentioned in this document or 2) investment advice. More important information can be found in the end of this document.

Asia – a lot of smoke dims the view

Eastern Europe – bright spots

The Chinese stock market fluctuations and the depreciation of the yuan have caused financial markets to tumble twice, once in late summer and in the beginning of this year. The renewed fall in oil prices has probably also played a role in the financial turmoil but it´s not obvious why these events should have such big impact on global financial markets as there are no clear link between these events and the development in the real economy. At best one can argue that the weakness in oil and stock prices reflect concerns that Chinese growth is decelerating rapidly. However, this relationship is not straight forward as lower oil prices is a stimulus to a heavy oil importer like China and the fall in Chinese stock prices came after a hefty rise in prices hence the wealth effect is negligible and a healthy normalisation.

The economies of Central and Eastern Europe were the odd man out as their robust domestic demand enabled them to increase growth last autumn. Strong private consumption, supported by tightening labor markets low inflation, allowed them to withstand the headwinds from weaker global growth. Last year the region’s economy is expected to have grown at the fastest pace since 2008, thanks to strong domestic demand. The healthy growth was supported by accommodative monetary policies and high real wages.

Chinese sentiment surveys have declined and manufacturing is in the contraction territory, industrial production is weak but shows a tendency to stabilize. Domestic demand seem to develop more orderly as expected by an economy transforming from investment and export driven to domestic demand driven. A little bit worrisome is that the service sector has moderated somewhat although it still shows good growth. The government has continued to relax the economic policy through interest rate cuts and more expansionary fiscal policy support. We believe this will have effect and ensure that the economy achieves a soft land and avoids a hard landing. Declining GDP growth in BRIC

Poland, the region’s largest economy, accelerated from 2014’s 3.4 percent expansion to a 3.6 percent increase in 2015. The tension in Russia dependent countries is likely to continue into 2016. The Ukraine conflict keeps Russia in political grid-lock and Ukraine in financial grid-lock. We do expect most of the Eastern European countries to benefit from low oil prices and a European market gaining traction.

Latin America – is there a bottom? Although a lackluster recovery in commodities prices may already have started or is expected later this year the remaining economic fundamentals are such poor state that the improvement in growth are likely to be moderate. Even if oil and commodity prices have bottomed out the low level will be felt by most economies. The low oil price effects most strongly the economies for which oil accounts for a significant share of exports and fiscal revenues: Venezuela, Colombia, Ecuador and, to a lesser extent, Brazil and Mexico. Yet with metals and agricultural prices also low which most countries in the region will feel through the deterioration in their terms of trade. Moreover, the tighter monetary conditions, as several key economies continue to deal with large deficits, a rebound in economic growth in Latin America is not in the cards, at least during the first half of the year.

Source: Macrobond

10 This document contains information and considerations that analysts, strategists and portfolio managers at Alfred Berg use as a base for handling portfolios and mandates. This document has been prepared for information purposes only and does not constitute 1) an offer to buy or sell, or a solicitation to buy or sell any such securities or financial instruments mentioned in this document or 2) investment advice. More important information can be found in the end of this document.

Brazil hiking rates making inflation spur

amongst investors to reduce risky assets also weights on equities. Some of the outflows comes from Sovereign Wealth Funds (SWF), money that will not return to equities any time soon. We also expect these flows to continue as most of the oil-producing countries are under pressure from the low oil-prices. Asset classes relative performance, 1Y 10 5 0 -5

Source: Macrobond

-10 -15

Valuation in emerging markets: If we look at emerging market it looks attractive if we purely look at the pricing related to both expected earnings and book values. On the other hand, Russia and Brazil is affected by high risk free rates and a negative real growth in the economy making the expected premium on equities less attractive. If correcting for the cyclically effects on earnings Latin America is lagging the others. We see Asia as the strongest bet in this category. Cyclically adjusted p/e, Asia ex Japan, 10Y

-20 -25 -30

World Stock Index World Bond Index US dollar Index Commodity Index

-35

Source: Bloomberg, Alfred Berg

In a 1-year perspective global equities have performed worse than bonds by some 10 percent. In a steady state economy, we are convinced equities will outpace bonds, but then again, the world economy is not in steady state. Looking at technical and trend analysis we are concerned on the broken long term trends. Many equity markets have fallen back to, or below, lows back in 2014. MCSI World All countries, 5Y

Source: Macrobond Source: Bloomberg, Alfred Berg

ASSET CLASSES Equities – continued volatility Equities have tumbled the first 2 months this year and could be in for continued volatility going forward. Although the value in equities still easily outweighs expensive bonds, the tendency

As pictured above, MSCI World AC are now in a falling trend since the summer 2015. Although tentative signs of a potential bottom in equities, we are still concerned that a trend reversal could take time to materialize.

11 This document contains information and considerations that analysts, strategists and portfolio managers at Alfred Berg use as a base for handling portfolios and mandates. This document has been prepared for information purposes only and does not constitute 1) an offer to buy or sell, or a solicitation to buy or sell any such securities or financial instruments mentioned in this document or 2) investment advice. More important information can be found in the end of this document.

Signs of capitulation in the markets Our risk sentiment indicator tracked the most negative sentiment since the Euro crisis in 2011. Towards the end of the month, risk sentiment improved somewhat as risky assets staged a relief rally. Sentiment however remains in a negative territory, which means that in case the current rally rolls over, we could quickly see renewal of the fears and a sharp increase in volatility. Alfred Berg’s risk-indicator, -5 years S&P 500

Sentiment Index: -0.63

2500

Sentiment, z-score 2.50 2.00

2000

1.50 COMPLACENCY

1.00 1500 0.50

0.00

1000

worrying is that this eroding liquidity trend has accelerated recently. In the SEK credit market it was triggered by the new tax imposed on banks’ balance sheets affecting their appetite to serve as a parking lot for credit bonds. To manage and forecast liquidity risk premium will be as important as analyzing credit risk, especially for high rated credit issuers. The spread margin for a credit bond – the difference in yield between any type of bond, and a default free treasury of the same maturity - can be seen to consist of two parts: 1) credit risk compensation and 2) liquidity risk compensation. What makes it complicated is that an issuer in a normal market can be considered liquid and in the next moment saturate the market with wider liquidity spread as a consequence.

-0.50 500

FEAR

-1.00 -1.50

Source: Alfred Berg, Bloomberg

0

-2.00

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Source: Alfred Berg

Looking into 2016, we anticipate that fundamental factors (growth, earnings, inflation) will have to take more and more responsibility for driving the risk sentiment from the central banks. The FED is set to continue its attempts to normalizing policy, whereas the magnitude for any new action from the ECB or BOJ seems quite limited. Transformation from a stimulus into a more fundamental driven market entails that markets should remain volatile in 2016. Equities still seem like the most attractive relative bet, but investors should prepare for any potential negative news (growth/earnings/credits etc.) not as easily backstopped by central banks any longer.

Nordic fixed income As mutual funds’ ownership share of corporate bonds rise and banks being forced to trim their balance sheets there is a growing liquidity mismatch between the mutual funds and the underlying securities. The liquidity problem in the credit market is not new or specific to the Nordic credit market but part of a mega trend that started after the financial crisis. What is

A good example of this problem can be seen in the Swedish credit market where the spread margin for a number low credit risk issuers - in this case Vasakronan and Rikshem, real estate issuers owned by state pension funds with change-of-control clause - and riskier industrial issuers with cyclical earnings (see figure). In this particular case the real estate companies has been the dominant bond issuers in the Swedish credit markets and is now expected to pay a higher margin when investors want to diversify their portfolios. 5-Year spread to SEK Swap, -1 years 5-year Spread to Swap

150

150

140

140

130

130

120

120

110

110

100

100

90

90

80

80

70

70

60

60

50

50

40

40

30

30

20 42004

42094 Vasakronan

42184 RiksHem

42274 Sandvik

42364

20 42454

Volvo (Trucks)

Source: Alfred Berg, Bloomberg

Portfolio implications for investors who are not capital owners, like mutual funds, is to avoid illiquid issuers that have tight spreads and low credit risk and instead invest in a combination of highly liquid issuers with low yield and illiquid

12 This document contains information and considerations that analysts, strategists and portfolio managers at Alfred Berg use as a base for handling portfolios and mandates. This document has been prepared for information purposes only and does not constitute 1) an offer to buy or sell, or a solicitation to buy or sell any such securities or financial instruments mentioned in this document or 2) investment advice. More important information can be found in the end of this document.

issuers with lower credit rating. Another implication is to avoid liquid issuers belonging to sectors that make up a large percentage of the typical credit portfolio – like the real estate sector in the SEK credit market. For some issuers within the identified sectors this has gone too far where we see value to sell cyclical industrial issuers and buy this above mentioned real estate issuers owned by the Swedish state pension funds (AP1 to AP4). Nordic policy rates and government bonds, 23rd Feb Nordic Policy Rates and Government Bonds Regions Policy Rate Denmark (DKK) -0.65 Finland (EUR Dep Fac) -0.30 Norway (NOK) 0.75 Sweden (SEK) -0.50

Normalized Returns 10 Year Ret (Loc) Adjusted Adj. Dur=4, Hedged EUR Yield Ytd Duration Mtd Ytd 0.51 4.31% 8.98 0.51% 1.90% 0.47 2.40% 6.70 0.39% 1.43% 1.43 0.82% 4.66 0.08% 0.52% 0.51 2.98% 6.46 0.29% 1.84%

Source: Alfred Berg, Bloomberg

Government bonds Government bond yields in the Nordics have followed the generic trend seen in most developed markets with falling long bond yields due to increased risk aversion and flight to quality. The short end of the yield curve is more tied to central bank monetary policy. In Sweden the Riksbank surprised the market in their February meeting with an unexpectedly large cut of 15 bps to -0.5 percent and decided to reinvest maturing bonds and coupons (in the Riksbank quantitative easing program). This move was done despite very strong growth and capacity utilization close to normal. The bank warned that monetary policy could be made more expansionary if needed to safeguard the inflation target of 2 percent. The central bank is looking at new monetary measures like: currency interventions, expansion of QE to include inflation linked bonds, or adopt a 2-tier policy rate system (similar to that of Schweiz, Denmark or in Japan). For now, the Riksbank will be in a waitand-see mode and is expected to do more only if the Krona appreciate or if the international economy deteriorates. Given the Riksbank strong focus on current low inflation there is risk that inflation overshoot current forecast over the medium term given the very strong domestic demand. There is value in Swedish inflation linked bonds if the interest

rate risk is hedged by selling nominal bonds with the same maturity, i.e. going long break-even inflation. The position has performed well lately with wider spread in break-even inflation which make the position sensitive for setbacks in the short term but the longer trend will be wider break-even. This position is more defensive than outright duration selling and can deliver good value even if the Riksbank expands its bond purchase. In the banks minutes there is a signal that it can allow inflation to overshoot given the long time inflation undershoot the target in the past which mean that there should be some risk premium in market pricing of expected future inflation. In Norway, Norges bank also remains in an easing mood. The reason is more “normal” with weak growth where the deteriorating Norwegian economy is barely growing. Norges bank will most probable deliver a policy rate cut in March and is expected to deliver more cuts during the year.

Mortgage covered bonds The mortgage covered bonds was not a brilliant investment last year with wider spreads and relative lower prices. Part of the reason was uncertainty about the covered bonds supply volume and part was that covered bonds functioned as a hedging mechanism for other type of credit bonds due to its liquid quality. During the beginning of 2016, in a period of increased risk aversion characterized with wider credit spreads, covered bonds have behaved well with relative stable spreads. The main reason is its already wide spreads which makes covered bonds a liquid investment with good value over government bonds. More stimulus from central banks should continue to give support to covered bonds going forward. Nordic credit markets, 23rd Feb Nordic Credit Markets Segment SEK Mortgage Covered SEK Investment Grade SEK High-Yield NOK Investment Grade DKK Mort Covered (non-call)

Source: Alfred Berg

Normalized Returns Index Spread to Ret (Loc) Adjusted Adj. Dur=4, Hedged EUR Yield Gov (bp) Ytd Duration Mtd Ytd 0.40 83 0.76% 2.72 0.31% 1.16% 1.06 142 0.96% 3.18 0.04% 1.20% 3.70 378 -0.30% 2.22 -0.03% -0.28% 1.76 97 0.76% 3.91 -0.02% 0.58% 0.46% 2.51 -0.04% 0.48%

13 This document contains information and considerations that analysts, strategists and portfolio managers at Alfred Berg use as a base for handling portfolios and mandates. This document has been prepared for information purposes only and does not constitute 1) an offer to buy or sell, or a solicitation to buy or sell any such securities or financial instruments mentioned in this document or 2) investment advice. More important information can be found in the end of this document.

Credits The Nordic credit market, especially the HighYield segment, have seen spread widening in general. Given the very illiquid markets flows, i.e. investor selling or new issuances, will be an important factor to determine the spread dynamics going forward. A good example of that dynamic can be seen in the Swedish markets where a state pension real estate company Willhem (residential housing) trade in parity with a cyclical industrial company like Sandvik (an engineering group in tooling, materials technology, mining and construction). Given the big uncertainty surrounding commodity prices over the medium term, especially in oil, we remain cautious, in the short term, to increase exposure to commodity linked issuers. Outside commodity issuers there is also uncertainty in subordinate bank bonds (like CoCo:s AT1) given all “knowns unknowns” and “unknown unknowns” – the ones we don't know we don't know. To list a few: uncertainty if banks can pay coupons because of the way capital level interact with the bank available distributable cash, uncertainty of future financial losses and regulatory uncertainty if a bank is allowed to call a CoCo bond if the price trade below par. Given the large price volatility we are still cautious to add despite we see potential good value in strong Nordic banks. Best value in Nordic credit market we see in a combination of low credit risk as in the state pension issuers like Willhem, Rikshem, Hemsö and Vasakronan together with high credit risk issues like corporate hybrids in corporates’ like Volvo Trucks. That in combination will offer more linear credit risks than the event risk that may pop up in the bank bonds CoCo land.

IG spreads vs Government, 23rd Feb 150

Spread Development Investment Grade SEK (Alfred Berg)

150

140

140

130

130

120

120

110

110

100

100

90

90

80

80

70

70

60

60

50

40 42004

50

42094

42184 Spread to Swap

42274

42364

40 42454

Spread to Gov

Source: Alfred Berg

Global fixed income Global rates continued to trade sharply lower on the back of negative risk sentiment, global growth concerns and expectations of additional central bank easing. In the Euro area, German 10-year yields are quickly approaching their alltime lows again, currently trading at around 14bps, and only a few basis points above the lows seen in April 2015 (7bps). ECB is widely anticipated to increase monetary stimulus in their March 10th meeting. Another deposit rate cut looks probable, but an expansion of QE (size or scope) is likely to be under discussion as well. Recent strength in the Euro together with declining inflation expectations will be difficult for ECB to ignore. In the US, 10y rates are trading at around 1.7 percent down by around 0.5 percent from the beginning of 2016. Despite some disappointing macro news, such as weaker than expected nonmanufacturing ISM, the recent decline in US rates looks out of sync with economic fundamentals. Recession risk in the US has increased recently, but is still low. Based on our assessment, risk of a US recession over the coming 6-months is around 20 percent. The recent decline in rates thus looks like an overshot which should correct over-time once the US economic data stabilizes and recessionary fears fade.

14 This document contains information and considerations that analysts, strategists and portfolio managers at Alfred Berg use as a base for handling portfolios and mandates. This document has been prepared for information purposes only and does not constitute 1) an offer to buy or sell, or a solicitation to buy or sell any such securities or financial instruments mentioned in this document or 2) investment advice. More important information can be found in the end of this document.

Alfred Bergs fair value model on US 10Y

Inflation-figures, US, -10Y

8

9 Fair Value Model, 2.1 %

US 10y Yield, 1.7 %

8

7

7

+1 stdev

6

6 5

5 4 4 3 3 2

2 -1 stdev

1

1

Source: Alfred Berg Asset Management

0 1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

0 2017

Source: Alfred Berg

Source: Alfred Berg, Bloomberg

Economic growth in the US looks likely to bounce back following a very disappointing fourth quarter growth in 2015. Currently, consensus estimates for US Q1 GDP growth are around 2 percent, with Atlanta FED GDP model now estimating growth to pick-up to 2.5 percent. Looking at the recent one year correlation between US 10-year yield and the Atlanta FED GDP Now model, US rates should increase over the coming months as US growth improves. Higher rates in the cards 3.0

Atlanta FED GDP Now

US 10y Yield

2.5 2.4

2.5

2.3 2.0

2.2 2.1

1.5

2 1.0

1.9 1.8

0.5

1.7 0.0 -0.5 Source: Alfred Berg, Bloomberg 03/2015 06/2015

More easing on the way – but will it make a difference? In Japan, the 10-year yield slipped into negative territory following BOJ’s surprising decision to cut deposit rates below zero and Kuroda’s clear indication that there is still scope for more easing. Quite interestingly, the response in currency markets was exactly the opposite as one could have anticipated: Japanese Yen traded sharply higher versus the USD and strengthened by a whopping 7 percent in February. The experience from BOJ’s recent action will make ECB’s March 10th monetary policy meeting all the more important. Was the reaction to BOJ just a one-off, or are financial markets starting to view continuous increases to monetary stimulus by global central banks as an act of desperation instead of useful policy tool?

1.6 09/2015

Source: Alfred Berg, Bloomberg

12/2015

03/2016

1.5

In addition, we saw some signs in February that inflation could finally be picking up in the US. Annual Core CPI picked up to 2.2 percent, and is likely to drag the FED’s favorite inflation metric, PCE Core Price Index, higher over the coming months.

USDJPY not moving as the BoJ wants it to 130

120

110 USDJPY

BOJ implements negative rates

100

Kuroda: "No limit to monetary easing"

90

80

Market based inflation measures are still depressed, but have stabilized recently. Commodity prices have also stabilized, which will help pushing inflation higher. Bond markets might have to re-examine the position that the FED is not going to raise rates this year.

Source: Alfred Berg, Bloomberg

70 09/2012

03/2013

09/2013

03/2014

09/2014

Source: Alfred Berg, Bloomberg

03/2015

09/2015

One worry in financial markets has been that negative deposit rates by central banks overall low interest rate environment will actually hurt banks’ profitability and thus limit their ability to

15 This document contains information and considerations that analysts, strategists and portfolio managers at Alfred Berg use as a base for handling portfolios and mandates. This document has been prepared for information purposes only and does not constitute 1) an offer to buy or sell, or a solicitation to buy or sell any such securities or financial instruments mentioned in this document or 2) investment advice. More important information can be found in the end of this document.

be profitable and provide lending to the real economy. This has been one of the main reasons behind the significant declines in banks shares prices and the blowout in credit and CDS spreads in Europe and Japan.

High yield and IG in US, EM & Eurozone HY, EMB, %

IG, % 3

12

10

2.5 US High Yield

8

What we witnessed in February raised some disturbing flashbacks from the dark days of the Euro crisis, when we the banks’ credit spreads and peripheral government bonds traded hand in hand. In 2016 so far, the spread widening in European financial institutions has dragged government bond spreads wider against Germany in Italy, Spain and Portugal. If ECB were to cut deposit rates further below zero, it should adopt a tiered deposit rate scheme in order to alleviate the fears of the monetary policy is having negative impact on financial institutions profitability. Interest rate differentials in Eurozone 8

4 Italy, Spain, Portgal 10y vs. Germany

EUR 5y Senior Financial CDS

7

3.5

6

3

5

2.5

4

2

3

1.5

2

1

1

0.5 Source: Alfred Berg, Bloomberg

0 2011

2012

2013

Source: Alfred Berg, Bloomberg

2014

2015

0

Fixed income allocation unchanged for now We keep our positive view of global credits unchanged despite some further spread widening in February. After upgrading our view of US high yield last month, this asset class has outperformed European high yield by around 1 percent. Credit markets in the US are currently trading at levels which are typically present in a recession. We regard the recession fears overdone and continue to see credits, especially high yield, offering good value at current levels.

2

6

1.5

Euro High Yield

Emerging Markets 1

4

Euro IG

2

0.5

Source: Bloomberg Lähde: Alfred Berg, Bloomberg

0 2010

2011

2012

2013

2014

2015

0

2016

Source: Alfred Berg, Bloomberg

The sell-off in US high yield has been largely blamed on the collapse in oil and commodity prices and the negative impact on energy and materials issuers. These two sectors currently account for around 25 percent of the US high yield market. True, these sectors have experienced the most violent spread widening among different sectors. Energy and materials issuers will face difficulties in 2016 but in our opinion the current spread already offers a solid buffer. In addition, looking at other sectors, credit spreads are close to or above the levels seen in 2011 also in industrials, communications and consumer discretionary, which together account for about 40 percent of the US high yield space. We acknowledge the fact that the uncertainty in the US economy has increased, but still regard the risk of a serious slowdown or a recession as low. Decomposition of the US-high yield space 2,000

OAS Spread, bps Energy

1,800 1,600

1,400 1,200 Industrials

1,000 Materials

800

Communications Cons.Discr.

600

Financials

400 Source: Alfred Berg, Bloomberg

200 2010

2011

2012

2013

Source: Alfred Berg, Bloomberg.

2014

2015

2016

Within emerging markets, we continue to favor hard currency bonds. We see value in the local

16 This document contains information and considerations that analysts, strategists and portfolio managers at Alfred Berg use as a base for handling portfolios and mandates. This document has been prepared for information purposes only and does not constitute 1) an offer to buy or sell, or a solicitation to buy or sell any such securities or financial instruments mentioned in this document or 2) investment advice. More important information can be found in the end of this document.

currency EM debt, but look for stabilization in the market sentiment towards emerging markets before increasing our allocation to the asset class. Local currency emerging market bonds have performed well so far in 2016, and we’re seeing some promising signs. EM debt has benefited from easier FED, which has acknowledged market’s fears of hiking rates too fast in an environment where inflation is still running below target and global growth outlook uncertain. Chinese FX reserves declined by 100bn USD in January One of the reasons behind the sell-off in risky assets in 2016 can be attributed to the continued weakness in Yuan, and fears of a significant abrupt devaluation in the currency (15-20 percent). This continues to be a potential risk factor for global markets, but Chinese authorities have shown their willingness to defend their currency. This will force China to burn its FX-reserves as it defends yuan and prevents it from depreciating. The total estimated FX burn last year was around 1 trillion USD, and the pace this year so far is at least on par with this. China is likely to hold Yuan stable over the short-term, but the FX reserves (currently at 3.2 trillion USD) are not limitless.

Hedge funds After the difficult year hedge funds have fared relatively well in the start of the year. YTD the Macro-tilted ones is barely in positive territory, while the other and the aggregate are just below zero. Global Hedge fund styles, -YTD 105 103 101 99 97 95 93 91 89 87 85

Macro/CTA Event Driven Relative Value Arbitrage Global Hedge Fund

Source: Bloomberg, Alfred Berg, as of 20160229

Real estate The real estate shares tumbled in the beginning of the year, but we rather see this as a buying opportunity for Nordic and European real estates. We however don’t consider US real estates as attractive as the other two markets given the trajectory of interest rate hikes in the US. Real estates in US (red), EU & Sweden (green), -YTD 110

Chinese reserves are diminishing $bn 4500

China foreign exchange reserves

105 CNYUSD Index

0.17

4000

0.165

3500

0.16 0.155

3000

0.15

2500

0.145 2000

100 95 90 85

Europé

US

Sweden

80

0.14

1500

0.135

1000

0.13

500

0.125

Source: Alfred Berg, Bloomberg

0 1995

Source: Bloomberg, Carnegie, Alfred Berg.

0.12 1997

1999

2001

2003

2005

Source: Alfred Berg, Bloomberg.

2007

2009

2011

2013

2015

ALTERNATIVES We still remain neutral towards alternatives. We however still see potential within Nordic Real Estate in this business cycle. On commodities our stance is still cautious/negative, where as we see some potential in hedge funds, especially on diversification aspects.

Commodities – More sideways On the margin commodity-prices is trying to stabilize, although being down YTD. We are more and more pencilling in the bottom of the bearmarket to come this year. If the bear-market continues past summer, it has only been surpassed by the bear-markets after WW1 and the Great Depression during the last 100 years.

17 This document contains information and considerations that analysts, strategists and portfolio managers at Alfred Berg use as a base for handling portfolios and mandates. This document has been prepared for information purposes only and does not constitute 1) an offer to buy or sell, or a solicitation to buy or sell any such securities or financial instruments mentioned in this document or 2) investment advice. More important information can be found in the end of this document.

If we will see a bottom remains to be seen, but if it does Emerging Markets becomes much more interesting from an investment perspective since investments have fled the regions in the aftermath of the ending of the great super-cycle. Commodity-prices in USD, Yen & Euro 110 105 100 95 90 85 80 75 70 65 60

USD value JPY value EUR value

Source: Bloomberg, Alfred Berg, as of 20160127.

We are still underweight Latin America, on political risks as well as continued pressure on their economies. We are however neutral towards Emerging Markets as a whole. Brent crude oil, -2 year

And with EU regaining some momentum it is not clear that we will have a large dollar-move unless ECB materially tries to weaken the Euro. The dollar/yen made a large move in the opposite direction to what the BoJ intended, leaving them off with a much stronger currency than before. Shortly it has weakened and could be heading back into the consolidation between 116 and 126. Concerning euro/dollar a long term projection points towards 0.90, but last year dollarstrengthening has resulted in a rather strong support at around 1.05. For any major break of the strong support it will need joint forces between ECB and the FED. Then the currencypair would be targeting 0.90. We are not convinced about this possibility since the FED most probably will take its hiking in a slower pace at the same time as we receive better hard data from the Eurozone, putting upward pressure on the Euro. Longer term the USDSEK is accumulating for a potential bigger $-strengthening (or weakening SEK) with a target of 13 SEK to the dollar. On the back of a strong Swedish economy it is difficult to see this unless the economy suddenly deteriorates. We anticipated that the NOK would fare well against the dollar, which it did. Gravitational forces could however potentially weaken the NOK towards 10 per dollar, although this will be dependent on both FED-action and a more negative blow towards the Norwegian economy than we currently are anticipating. YTD the NOK actually have strengthened, but now sets for a weakening move.

Source: Bloomberg

Currencies – all about FED-action The question for 2016 is how much, if any, the US-dollar will strengthen against other currencies. As the only major central bank pursuing a tightening policy the field lays open to a super-dollar. From a longer term perspective it is obvious that the dollar has advanced high enough to bolster such believes. We will however not over dramatize this as it needs the other currencies to move in the opposite direction.

18 This document contains information and considerations that analysts, strategists and portfolio managers at Alfred Berg use as a base for handling portfolios and mandates. This document has been prepared for information purposes only and does not constitute 1) an offer to buy or sell, or a solicitation to buy or sell any such securities or financial instruments mentioned in this document or 2) investment advice. More important information can be found in the end of this document.

Currency-pairs, YTD 120 115 110

EURSEK 105

USTW$ Index USDJPY

100

EURUSD

95

USDNOK

2016-02-26

2016-01-26

2015-12-26

2015-11-26

2015-10-26

2015-09-26

2015-08-26

2015-07-26

2015-06-26

2015-05-26

2015-04-26

2015-03-26

2015-02-26

90

Source: Bloomberg, Alfred Berg IMFs forecasts

2014 World 3,4 Developed countries 1,8 US 2,5 EU 0,9 Germany 1,6 France 0,2 Italy -0,4 Spain 1,4 Japan 0 UK 2,9 Canada 2,5

GDP 2015 2016 2017 3,1 3,4 3,6 1,9 2,1 2,1 2,5 2,6 2,6 1,5 1,7 1,7 1,5 1,7 1,7 1,1 1,3 1,5 0,8 1,3 1,2 3,2 2,7 2,3 0,6 1 0,3 2,2 2,2 2,2 1,2 1,7 2,1

Emerging Markets Russia China India Emerging Europé Latin America Brazil Mexico

4,6 4 4,3 0,6 -3,7 -1 7,3 6,9 6,3 7,3 7,3 7,5 2,8 3,4 3,1 1,3 -0,3 -0,3 0,1 -3,8 -3,5 2,3 2,5 3,6

4,7 1 6 7,5 3,4 1,6 0 3,6

World trade volume

3,4

2,6

3,4

4,1

CPI Advanced countries Emerging Markets

1,4 5,1

0,3 5,5

1,1 5,6

1,7 5,9

Source: IMF, January update

19 This document contains information and considerations that analysts, strategists and portfolio managers at Alfred Berg use as a base for handling portfolios and mandates. This document has been prepared for information purposes only and does not constitute 1) an offer to buy or sell, or a solicitation to buy or sell any such securities or financial instruments mentioned in this document or 2) investment advice. More important information can be found in the end of this document.

Valuation table Ratios Forward P/E (12mth) (close) Forward P/E (12mth) (mean 10 y) Forward P/E (12mth) (value at -1y) Forward P/E (2Y) (close) Forward P/E (2Y) (mean 10 y) Forward P/E (2Y) (value at -1y) Cyclically adjusted P/E (close) Cyclically adjusted P/E (mean 10 y) Cyclically adjusted P/E (value at -1y) Expected risk premium (close) Expected risk premium (mean 10 y) Expected risk premium (value at -1y) Curent risk premium (close) Current risk premium (mean 10 y) Current risk premium (value at -1y) P/B (close) P/B (mean 10 y) P/B (value at -1y) PEG (close) PEG (mean 10 y) PEG (value at -1y)

USA

Japan

Europe

World

Nordics

Sweden

Norway

Finland

Denmark

Asia ex. Japan

Eastern Europe

China

Latin America

Russia

Brazil

15.9 14.1 17.5 14.3 13.5 15.9 15.3 14.2 16.7 4.3 2.6 4.3 4.5 4.1 3.7 2.4 2.3 2.6 3.0 1.6 4.5

12.1 15.3 14.4 12.0 14.3 14.3 11.8 15.4 15.1 3.6 1.9 3.2 8.3 5.8 6.6 1.1 1.3 1.4 0.9 0.9 1.1

13.8 11.9 15.6 12.5 11.5 14.1 13.2 12.0 14.2 5.4 2.5 5.0 5.9 5.2 5.2 1.5 1.7 1.8 3.0 1.3 2.9

14.8 13.4 16.6 13.5 12.8 15.1 14.4 13.5 15.7 4.6 2.5 4.4

15.2 13.5 16.5 14.0 12.9 15.1 14.3 13.6 15.4

14.7 13.8 17.2 11.2 10.3 11.6 14.6 13.9 17.4 6.3 3.6 5.9 6.3 4.6 5.3 1.6 1.7 2.0 11.3 0.2 1.4

17.6 14.7 17.5 15.8 13.9 15.4 16.8 15.0 17.7 5.3 1.8 5.7 5.2 4.5 5.4 3.1 2.2 2.9 1.2 1.2 1.4

7.3 7.6 6.9 5.9 7.4 6.2 5.6 7.7 5.4

1.1 1.6 1.4 2.6 0.8 1.2

0.5 1.1 0.5 -0.6 -1.6 -0.8

9.2 11.5 10.0 8.2 11.0 9.0 8.2 11.8 9.6 8.5 9.8 8.3 8.0 6.5 6.7 1.1 1.9 1.4 1.3 1.0 1.5

12.2 11.3 12.8 9.9 10.8 11.3 11.1 11.2 11.1

2.1 2.1 2.3 4.2 1.4 1.7

13.1 10.7 12.5 11.2 10.3 11.6 11.0 10.7 11.6 7.3 4.2 6.6 6.2 6.4 6.5 1.3 1.6 1.3 37.9 1.0 -1.9

10.8 11.9 11.7 9.9 11.4 10.8 10.1 12.1 11.4

1.9 1.9 2.1 2.6 1.4 3.3

14.2 13.3 16.7 13.3 12.8 15.4 13.5 13.5 17.1 7.5 4.4 7.3 6.3 5.1 5.4 2.0 2.1 2.4 6.9 1.8 1.3

5.9 6.7 5.2 4.5 6.6 4.7 4.3 6.9 3.9 2.8 4.1 -0.4 6.9 12.3 6.1 0.4 1.0 0.4 -0.4 0.8 -0.4

9.8 9.9 10.5 7.4 9.4 9.3 9.2 9.9 10.0 -4.8 -0.9 -1.4 -5.2 -2.2 -3.2 0.9 1.7 1.3 0.4 0.5 0.8

786.3 731.3 898.9 65.2 49.0 62.5 65.7 51.7 63.0 66.4 48.7 59.7 2.3 2.0 1.8 0.3 0.3 0.3 -0.1 1.1 0.3 8.3 6.8 7.0 0.7 0.5 0.7 1.2 0.5 1.0 -0.9 -2.2 -1.5 714.4 561.0 642.0 12.9 91.4 13.5

1,370.9 1,562.4 1,667.4 99.3 132.0 107.2 109.4 137.7 118.2 104.7 132.3 117.5 4.1 3.8 3.4 0.6 0.5 0.5 1.1 3.4 1.2 7.2 8.6 6.4 1.6 0.7 1.6 1.4 1.5 1.1 -1.6 -0.9 -2.1 892.9 918.0 929.6 4.6 9.5 5.3

372.4 339.9 429.9 25.1 25.3 25.9 27.7 26.5 28.5

5,259.7 5,341.7 6,129.3 346.4 399.7 371.4 27.7 26.5 28.5 371.0 397.4 399.2 3.9 3.6 3.4 0.6 0.5 0.6

1,328.1 1,123.9 1,631.0 93.8 84.7 97.7 100.1 88.0 105.9 98.4 84.0 95.5 4.6 4.0 3.9 0.7 0.6 0.7 0.7 2.6 0.6 7.1 7.7 6.0 2.5 1.8 2.6 1.7 1.3 1.5 0.1 -0.1 -0.7 669.0 534.6 691.2 2.1 6.9 12.5

2,092.1 2,444.6 2,679.9 159.9 229.6 214.3 186.4 239.4 231.2 190.7 229.5 230.5 5.2 4.3 4.1 0.7 0.5 0.5 1.4 3.2 1.5 7.6 9.6 8.0 1.8 1.3 1.6 2.4 2.0 2.4 -0.8 0.1 -0.6 1,670.9 1,522.0 2,070.3 0.3 8.5 -6.5

4,977.4 4,474.5 5,626.6 339.5 326.5 328.1 365.8 341.6 356.1 342.0 325.3 322.7 4.6 4.3 3.9 0.7 0.7 0.7 0.4 2.8 0.5 6.8 7.4 5.8 1.3 0.2 1.1 1.7 1.9 1.4 -2.7 -0.4 -3.2 3,096.6 2,593.1 2,782.5 1.3 13.4 12.4

895.1 513.1 815.6 50.8 34.6 46.7 365.8 341.6 356.1 53.4 34.1 46.1 2.5 2.1 2.3 0.4 0.3 0.4 0.5 2.6 0.3 5.7 7.1 5.7 2.1 0.6 2.0 2.0 1.7 1.7 -0.7 -0.1 -1.3 287.0 227.9 282.0 14.5 13.1 12.8

427.8 465.3 545.3 39.8 39.6 46.7 43.4 41.3 50.5 42.4 39.3 47.8 3.2 2.9 2.8 0.3 0.4 0.3

104.0 215.8 135.4 14.2 29.0 19.8 17.6 29.7 21.9 18.5 29.1 24.9 5.2 3.5 4.6 0.4 0.3 0.3

1,711.7 3,377.2 2,637.7 139.9 301.8 206.5 172.7 316.9 233.1 153.9 303.6 237.1 26.5 35.8 32.1 0.4 0.4 0.5

9.3 8.5 8.6

13.7 14.4 14.6

-1.0 -1.7 -1.6 375.8 291.7 401.1 4.2 12.3 9.5

-1.0 -1.7 -1.6 207.7 211.0 250.6 -12.2 3.1 -8.9

50.8 59.1 68.9 5.5 5.4 6.9 6.2 5.7 7.6 6.2 5.3 7.2 3.0 2.9 3.1 0.3 0.3 0.3 2.9 3.6 3.3 10.9 9.3 10.0 6.2 8.0 6.3 2.5 2.7 2.3 -1.0 -1.7 -1.6 44.2 33.3 51.0 7.3 12.4 6.4

377.2 841.5 492.4 64.0 130.1 94.9 83.6 132.9 104.6 88.5 130.0 127.0 5.5 3.3 5.0 0.3 0.2 0.3 10.0 9.1 13.2 17.0 17.1 19.3 1.0 1.2 0.1 5.8 8.6 7.7 -1.0 -1.7 -1.6 1,005.9 938.0 1,267.1 24.2 14.2 14.4

148,798 201,823 188,645 15,149 20,573 17,884 20,111 21,618 20,263 16,243 20,659 18,893 4.9 3.8 4.6 0.5 0.4 0.5 15.6 12.3 12.7 17.0 17.1 19.3 1.7 1.9 0.8 5.2 6.0 5.9 0 0 0 165,747.3 126,765.9 141,006.3 26.0 14.3 13.3

Components Price (close) 1,909.3 Price (mean 10 y) 1,517.4 Price (value at -1 y) 2,156.7 Forward earnings (12 mth) (close) 120.4 Forward earnings (12 mth) (mean 10 y) 107.3 Forward earnings (12 mth) (value at -1 y) 123.1 Forward earnings (2Y) (close) 133.5 Forward earnings (2Y) (mean 10 y) 111.9 Forward earnings (2Y) (value at -1 y)) 136.0 Earnings (10 year moving average) (close) 125.2 Earnings (10 year moving average) (mean 10 y) 106.4 Earnings (10 year moving average) (value at -1 y) 129.1 Divdendyield (close) 2.4 Divdendyield (mean 10 y) 2.1 Divdendyield (value at -1 y) 2.0 Payout ratio (close) 0.4 Payout ratio (mean 10 y) 0.3 Payout ratio (value at -1 y) 0.4 10 year government bonds (close) 1.7 10 year government bonds (mean 10 y) 3.1 10 year government bonds (value at -1 y) 2.0 Earningsyield (close) 6.3 Earningsyield (mean 10 y) 7.2 Earningsyield (value at -1 y) 5.7 Expected GDP growth (5 years forward) (close) 2.5 Expected GDP growth (5 years forward) (mean 10 y) 1.8 Expected GDP growth (5 years forward) (value at -1 y) 2.6 Expected Infaltion (5 years forward) (close) 2.0 Expected Infaltion (5 years forward) (mean 10 y) 1.7 Expected Infaltion (5 years forward) (value at -1 y) 1.6 Book values (close) -1.0 Book values (mean 10 y) -1.7 Book values (value at -1 y) -1.6 Expected earningsgrowth (12 mth) (close) 807.0 Expected earningsgrowth (12 mth) (mean 10 y) 667.4 Expected earningsgrowth (12 mth) (value at -1 y) 840.6 Expected earningsgrowth (2Y) (close) 5.3 Expected earningsgrowth (2Y) (mean 10 y) 11.4 Expected earningsgrowth (2Y) (value at -1 y) 3.9

2.9 2.7 2.5 0.4 0.4 0.4

6.6 7.6 6.1

-1.0 -1.7 -1.6 201.0 178.2 203.2 5.7 11.5 5.1

-1.0 -1.7 -1.6 2,488.5 2,584.7 2,676.8 3.7 8.4 9.8

1.1 1.9 1.6 0.5 0.6 0.9

8.2 9.0 7.8

-1.0 -1.7 -1.6 1,551.4 1,824.0 1,619.4 24.2 14.2 14.4

Brazil prices and earnings in millions.

Source: Macrobond, as of 2016-02-29.

20 This document contains information and considerations that analysts, strategists and portfolio managers at Alfred Berg use as a base for handling portfolios and mandates. This document has been prepared for information purposes only and does not constitute 1) an offer to buy or sell, or a solicitation to buy or sell any such securities or financial instruments mentioned in this document or 2) investment advice. More important information can be found in the end of this document.

CONTACTS - TACTICAL ASSET ALLOCATION Stockholm Jonas Olavi Nordic & Swedish Head of TAA [email protected] +46 562 347 76 Twitter @j_olavi Nybrokajen 5 P.O. Box 70447 SE-107 25 Stockholm tel. +46 8 562 347 00 www.alfredberg.se

Helsinki Johannes Hyytiäinen Finnish Head of TAA, PM [email protected] +358 9 228 32 635 Pohjoisesplanadi 37 A FI-00100 Helsinki tel. +358 9 2283 21 www.alfredberg.fi

Oslo Christian Grosch, CFA Norwegian Head of TAA [email protected] +47 22 00 51 51 Twitter @chgrosch Munkedamsveien 35 P.O. Box 1294 Vika NO-0111 Oslo tel. +47 2200 5100 www.alfredberg.no

IMPORTANT INFORMATION This document contains information and considerations that analysts, strategists and portfolio managers at Alfred Berg use as a base for handling portfolios and mandates. This document has been prepared solely for informational purposes and does not constitute 1) an offer to buy or sell or a solicitation of an offer to buy or sell any security or financial instrument mentioned in this document or 2) any investment advice. Before investing in any product of BNP Paribas Investment Partners* or Alfred Berg**, you should inform yourself about the (financial) risks and possible restrictions to which you and your investment activities may be subject under the laws of your country. The value of your investments may fluctuate. Past performance is no guarantee for future returns. It is possible that your investment will increase in value. It is also possible, however, that your investment will generate little or no income and that, if the asset price performs poorly, you will lose some or all of your initial outlay. BNP Paribas Investment Partners and Alfred Berg have taken all reasonable care to ensure that the information contained in this document is correct but does not accept liability for any misprints. The information and opinions contained herein can be changed without notice. BNP Paribas Investment Partners and Alfred Berg are not obliged to update or alter the information or opinions contained herein. * “BNP Paribas Investment Partners” is the global brand name of the BNP Paribas group’s asset management services. **Alfred Berg is the Nordic brand name of the Alfred Berg group, which consists of Alfred Berg Asset Management AB, Alfred Berg Kapitalförvaltning Finland Ab, Alfred Berg Rahastoyhtiö Oy, Alfred Berg Kapitalforvaltning AS, Alfred Berg Fonder AB and Alfred Berg Kapitalförvaltning AB. For information about the addresses and regulators, please refer to www.alfredberg.com.

21 This document contains information and considerations that analysts, strategists and portfolio managers at Alfred Berg use as a base for handling portfolios and mandates. This document has been prepared for information purposes only and does not constitute 1) an offer to buy or sell, or a solicitation to buy or sell any such securities or financial instruments mentioned in this document or 2) investment advice. More important information can be found in the end of this document.