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 Swedish recovery. Rather the latter reflects a broader trend of DMs losing market share to EMs. • But global recovery still positive for the high beta Swedish economy and SEK. Moreover, global growth is equity supportive which is bullish SEK. Swedish growth numbers have disappointed repeatedly over the past 6-9 months, causing market participants to scale down their expectations for growth and policy normalization. This has in turn resulted in a gradual weakening of the SEK from around 8.40 vs. the EUR back in March/April last year to current levels around 8.90. Disappointing growth numbers are a reflection of subdued industrial activity, which in a small open economy like Sweden has also been weighing on consumer sentiment, job growth and domestic activity. However, blaming the disappointing industrial activity on a strong krona is difficult when the currency is undervalued on all metrics (PPP, BEER, FEER), and the SEK BEER not historically strong. Instead, the country breakdown of imports in Germany and Norway, Sweden's key export markets, shows developed markets continuing to lose market share to developing countries, suggesting the latter can now compete in major Swedish export areas like "machinery & transport equipment" where they previously have been small players. This is backed up when looking at hard data, with rising German imports mainly benefitting Central and Eastern Europe. The CE-4 market share of total German imports post-crisis has risen by 50% to around 12% of total. Meanwhile Norwegian imports are showing a similar but broader trend towards developing countries (including Asia) and away from the rest of the Nordics, Eurozone, US and UK. This of course very much goes against the popular view that DM imports might be decoupling from EM exports. Nonetheless, whilst losing