Pohjola's analysts: Is strengthening economic growth already reflected in prices?
The world economy is continuing its gradual improvement, with economic growth in
developed countries, in particular, speeding up and growth in emerging economies
speeding up only slightly. The speed-up has relied on the accommodative monetary
policy, but strengthening growth would also enable a less accommodative monetary
- The positive economic sentiment in the USA and the world economic recovery
will support risk-taking and so we are still taking a positive view of equities
and especially High Yield corporate bonds in the bond market, state the
- The stock market rally has substantially raised market valuations. We think,
however, that improved risk sentiment, expectations of accelerating global
economic growth and weak returns on alternative investments justify the
overweight equity allocation. We now favour sectors with a combination of
potential for markedly improved earnings performance and reasonable valuation.
Such European sectors include the automobile industry, household goods and
technology. Industrial goods and services also have potential as the world
economy is recovering, although valuation ratios are still high, says Jarkko
Soikkeli, Equity Strategist.
- Our favourite Finnish stocks for early 2013 include Cargotec Corporation,
Metso Corporation, MetsÃ¤ Board, Nokian Tyres Plc and Uponor Corporation. At the
same time, we recommend avoiding the following stocks: Elisa Corporation, Tieto
Corporation, UPM-Kymmene Corporation and WÃ¤rtsilÃ¤ Corporation, continues
That the US and UK economic picture remains upbeat will support the expectations
of Pohjola's analysts that investors bring forward expectations for when the Fed
raise the key rate. The euro-area yield curve is in line with the current view
of the analysts. According to the analysts, the recommended duration in the euro
area is still five years.
- We expect the US dollar to strengthen against the euro when the Fed is under
higher pressure to raise the key rate. We anticipate that emerging economies
will strengthen in the global economic slipstream, but the emerging economies'
currencies are still waiting to see an improvement as a result of the Fed's
pressure to raise its key rates. The accelerating inflation rate in the USA and
the accelerating global economic growth will support investment-led recovery in
the commodities markets. In Europe, price prospects for electricity, coal and
emissions allowances are anaemic, says Jukka Ruotinen, Head of Fixed Income and
- In the current market environment, we favour High Yield corporate bonds more
than Investment Grade bonds because of their higher risk premium potential and a
better hedge against interest rate movements. In terms of company fundamentals,
we see corporate bonds issued by the following Finnish companies as the most
valuable: Cramo Plc, Nokian Tyres plc, PKC Group Plc, Ramirent Plc and Tieto
Corporation. In our view, the yield of corporate bonds issued by Elisa
Corporation, Neste Oil, Nokia Corporation, NSN and SRV to the least attractive
in relation to corporate credit rating, continues Ruotinen.
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 is part of OP-Pohjola Group, the leading financial
services group in Finland with over four million customers.
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