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CIO Insights Resilience versus recession 05 Stocks: from TINA to TAPAs? 2022 was a tough year for stock market investors. Despite the overall increase in corporate profits, stock prices came under pressure due to high geopolitical uncertainty, increasing inflation and a bond market sell-off. The latter pushed real yields back into positive territory ending the era of TINA (There Is No Alternative) in which investors increased their stock allocations at the expense of bonds, driving equity valuations to near-record highs. After the yield moves of 2022 TINA has left the stage, though, and the market setting has flipped to TAPA (There Are Plenty of Alternatives), which has resulted in lower equity valuations. At the index level, the declines varied across stock market regions. At times, NTM price-earnings (P/E) ratios fell below their long-term averages. The NTM P/E ratio of the MSCI World Index was 15x at the start of November 2022, a decline of -25% on the start of the year and 7% down on its 10-year average. Currently, equities therefore seem to be valued on the low side. Figure 9: After market adjustment 2022: Reasonable valuations Source: Refinitiv Datastream. Data as of November 21, 2022. 40% 30% 8% 20% 10% 0 -10% -4% -20% -16% -3% -22% -25% -30% -29% -31% -32% -40% -37% -50% MSCI EM FTSE 100 MSCI SMI MSCI MSCI MSCI MSCI AC MSCI EM MSCI China LatAm Japan USA Europe Emerging Asia ex JP Asia Markets NTM EPS (YTD%) NTM P/E (YTD%) Price (YTD%) For the full year 2023, we believe that nominal company profits will match their prior-year levels and will not fall as they did in previous recessions. The basis for this assumption is the nominal growth of gross domestic product – the development of economic output without adjustment for inflation. For the full year, increases of 5% in the U.S. and as much as 6-7% in Europe are considered possible. There are many reasons for our relatively robust forecasts for nominal economic and profit growth. Unlike in previous recessions, private consumption could be supported by high levels of savings built up during the coronavirus pandemic. High energy prices should continue to bolster the profits of energy companies in particular and also of companies in primary and mining industries. Financial companies should also benefit from the new (higher) interest rate environment. So while aggregate index margins have probably peaked, we do not believe that they will collapse. In Europe, Middle East and Africa as well as in Asia Pacific this material is considered marketing material, but this is not the case in the U.S. No assurance can be given that any forecast or target can be achieved. Forecasts are based on assumptions, estimates, opinions and hypothetical models which may prove to be incorrect. Past performance is not indicative of future returns. Performance refers to a nominal value based on price gains/losses and does not take into account inflation. Inflation will have a negative impact on the purchasing power of this nominal monetary value. Depending on the current level of inflation, this may lead to a real loss in value, even if the nominal performance of the investment is positive. Investments come with risk. The value of an investment can fall as well as rise and you might not get back the amount originally invested at any point in time. Your capital may be at risk. This document was produced in December 2022. 14

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