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6 Points interview: Global economy

1.       What are your predictions on global economic development in 2014? What kind of trends should investors pay attention to?

At Evli we think that global growth will pick up in 2014, although the recovery is not believed to be strong. We see the most interesting opportunities in Europe, which is recovering from the recession. In the euro-zone, equity valuation is still not expensive. Also, as growth numbers are getting better, especially in the US. We may see the Fed start to taper at the beginning of next year. This will put some pressure on long rates that are at a very low level.

At the same time 2014 will be a very difficult year for fixed income investors, as expected return is almost close to zero in fixed income assets. The best asset class in fixed income will be euro-area high-yield bonds, which we expect to earn a return of around 5 – 7 % next year.

2.       A few years ago it was clear that the BRIC countries of Russia and China are doing great, while the USA and EU were drowning in debts.  How could you define the current situation and how long is this situation going to last?

As global growth is normalising, and investors' sentiment is improving, their focus on weak countries with high debt levels is getting less intense. At the moment, the biggest concern in the emerging markets (EM) is the commodity market, where the trend of rising prices experienced a downturn in 2010. Currently there is an oversupply in many commodities, and the outlook is weak.  Usually it takes many years to normalise the oversupply that we see in the EM countries commodity market right now. At the moment, we at Evli are cautious regarding EM equities.

3.       Which countries’ or regions’ economic situation raises the biggest concerns and which of them seem to be the best ones?

We are overweight in euro-zone equities, as the situation in this area is still improving from the recession.  At the moment, our biggest concerns are regarding countries like Brazil, China and Russia, which are all highly dependent on the commodity cycle.

4.      Where do the Scandinavian countries stand in the European investment map? What issues can have an impact on investors’ perceptions of the Scandinavian countries?

The situation is very different depending on which Scandinavian country we are talking about. The economic situation is probably the weakest in Finland, where consumers have a lot of head wind from high debt levels and low economic growth. One of the biggest problems Finland is facing is the loss of competitiveness. Looking at the other Scandinavian countries, the outlook for growth is much stronger and more optimistic.

5.       Are there any positive news from the Baltic countries that could have a positive impact on the investors' perception of these relatively small markets?

The Baltic countries are recovering quite fast and are also getting support from the fact that global growth is rising. At the moment, investors are quite cautious in emerging markets and hence their interest in the Baltic countries is very low. Eastern Europe in particular is not a place, where we see a lot of clients' interest. Nevertheless, we hope that the latest economic performance and ease of doing business  in Baltic countries will attract more investors.

6.       When do you foresee the next global economic crisis?

It has never been a good strategy for an investor to wait for the next crisis. But we think that before 2020 we might have the next major crisis which will probably be related to the financial crisis of 2008 and the massive liquidity injection that central banks have done all over.

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