EFTA01451173.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 DatedsIS* litemberglinarte rP 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 SEX 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 Au° data, with rising German imports mainly benefitting JPY use Central and Eastern Europe. The CE-4 market share of 20 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 7011 the rest of the Nordics, Eurozone, US and UK. This of course very much goes against the popular view that Sant' Ow:aft ant Oloornbe 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 - 61:1 economy, more so than in most of the rest of G10. This -5 - - 55 is SEK positive, partly because it will mean market - 50 participants will have to re-assess the policy outlook, of 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 LW mit Ms rate cycle in the US. Target a gradual move to 8.55 in — Stslen TCW n10et TOT OrkorM0 since lower index Brower SEIC), Ihs 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 Sonetg 'max< 4P 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 107450 CONFIDENTIAL SDNY_GM_00253634 EFTA01451173