USA

Throughout the year the budget deficit declined at a faster pace than expected, but the national debt continues to grow and the debt ceiling will have to be raised again in February. This could create uncertainty in the market, even though all market players expect the ceiling to be upped. The Fed announced in December that it will now reduce its purchases of government securities, as expected. The market had already factored in a monthly reduction in purchases of USD 10 billion ahead of the summer, and as a result US long-term interest rates rose from 1.6 percent in May to 3.0 percent in September. When the unemployment rate reaches 6.5 percent, interest rates will start to rise, which is likely to result in capital seeking its way back to the US market. The housing market has gained momentum in terms of both new construction and prices, consumption has slowly grown, extraction of oil and gas from shale is generating an energy surplus, and activity in the market in general has increased. Optimism is burgeoning on the US stock market, and the exchange crossed its all-time high again for the first time in thirteen years. US stocks will likely continue to attract investors during the year, given these improvements and low interest rates. We estimate, however, that the upside potential is more limited in view of last year's rise.

Europe

During the autumn, rising unemployment levelled in several of the economically hardest-hit countries. Confidence indicators have turned upward again on the European markets and GDP growth has begun to rise. The fiscal constraint of recent years has eased somewhat, while the expansionary monetary policy has continued. There is a desire to create growth while retaining budgetary requirements. The UK and Irish economies have strengthened during the year, and they are reporting surprisingly good growth rates. At the end of the year, things even started to look a little brighter for the Spanish economy. The ECB decided to cut interest rates in November, which surprised the market. This means that Germany risks overheating an economy that has already performed well thanks to such a large share being exports, which benefit from a weak euro. On the European stock exchanges there are good chances of finding companies that remain undervalued and that could benefit from external economic improvement going forward.

Sweden

Swedish economic growth has been good, but not quite as strong as one might expect given its comparatively low fiscal debt, large proportion of GDP revenue from exports to economically prosperous countries and the increase in household disposable income. The confidence indicators for most sectors rose significantly during the year, but there has been no apparent corresponding profit growth in companies. During the second half of the year, order books have appeared increasingly well filled, while businesses have toiled with currency problems, both domestically and for operations in other markets. We envision that companies will benefit from stronger growth in 2014, and their cost structure is lean. Industrial production has risen for several months, including in the motor vehicle sector and the timber trade. Even the construction industry is starting to show better numbers. The Swedish stock market was one of the stronger bourses over the past year, and a higher average valuation of companies means that many are now fully valued. Nevertheless, we believe that interest in the stock market will persist since the alternative of fixed income investments offers low yields, corporate profit growth is likely to increase in 2014 and there are still some companies that are undervalued.

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