EFTA01446662.pdf

9 January 2014 EX Blueprint Thin end of the wedge Theme #6: SEK to score with thaw • The krona is not the main culprit of a lukewarm Figure 1 : Albeit with a lag, the Swedish PMI is likely to Swedish recovery. Rather the latter reflects a broader trend of DMs losing market share to EMs. follow USD and DEM PMIs higher • But global recovery still positive for the high beta 70 - Swedish economy and SEK. Moreover, global 65 - growth is equity supportive which is bullish SEK. 60- Swedish growth numbers have disappointed repeatedly 55 - over the past 6-9 months, causing market participants to scale down their expectations for growth and policy 50- normalization. This has in turn resulted in a gradual 45 - weakening of the SEK from around 8.40 vs. the EUR back in March/April last year to current levels around 40- 8.90. Disappointing growth numbers are a reflection of 35 - subdued industrial activity, which in a small open 30 - economy like Sweden has also been weighing on , 2005 2006 2007 2008 2009 201O 2011 2012 consumer sentiment, job growth and domestic activity. However, blaming the disappointing industrial activity Sant Dated.IS* litemberglinarte1P on a strong krona is difficult when the currency is undervalued on all metrics (PPP, BEER, FEER), and the 'Figure 2: Exports of Goods & Services, Percent of GDP SEK BEER not historically strong. Instead, the country breakdown of imports in Germany and Norway, e° 1 ow SEK Sweden's key export markets, shows developed E UR w e, markets continuing to lose market share to developing 50 countries, suggesting the latter can now compete in major Swedish export areas like "machinery & 40 GBP :co A WO transport equipment" where they previously have been small players. This is backed up when looking at hard Auo data, with rising German imports mainly benefitting JPY use Central and Eastern Europe. The CE-4 market share of 2,3 total German imports post-crisis has risen by 50% to around 12% of total. Meanwhile Norwegian imports are to showing a similar but broader trend towards developing countries (including Asia) and away from 0 2011 the rest of the Nordics, Eurozone, US and UK. This of course very much goes against the popular view that Sant' Oweick• are. Oloonibe SennLP DM imports might be decoupling from EM exports. Nonetheless, whilst losing market share means an Figure 3: SEK trade-weighted (TCW) & the US ISM ongoing global recovery will be less of a driver of Swedish GDP growth, it will still be growth supportive, - 65 and given the degree of openness in the Swedish -10 - 60 economy, more so than in most of the rest of G10. This -5 - - 55 is SEK positive, partly because it will mean market 0- 50 participants will have to re-assess the policy outlook, at 5 but more because it should translate into similar 10 - - 45k growth in corporate revenues. With Swedish stock - 40 15 - valuations only in line with the longer- term average, 20 - - 35 this should also translate into higher equity prices. 25 -30 Global growth and higher equity prices are typically associated with a stronger SEK, and are factors more . 2e02 2004 2006 2006 2010 2012 2014 2010 important than [an orderly] turnaround in the interest —US ISM nit the rate cycle in the US. Target a gradual move to 8.55 in — Stexien TCW hies. WY Onserted since bar index =strew SEKL In EUR/SEK, with a stop @ 9.15. In options a3m EUR/SEK 8.65 put costs an indicative 52bp, and can be largely Sant Aurae..Bent Sooner;RoweIP financed by selling a 3m EUR/SEK call with a strike around the more than 2y highs @ 9.15. Page 12 Deutsche Bank AG/London CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0 100961 CONFIDENTIAL SDNY_GM_00247145 EFTA01446662