Posted inNORDICS

market insight 2012 Q1 Sweden

It will be unsurprising to hear that Swedish investors say the economic outlook for Sweden is bleak due to the economic crisis. But the successful exporting industry in Sweden has done well despite the economic slowdown. When looking to the future, investors said it is promising that Sweden mainly exports to successful markets in Northern Europe, North America and Asia, and is less reliant on selling its goods to the PIIGS countries.

Investors in Sweden said more fiscal cooperation in Europe is crucial for the economy to grow. They also point out that it is hard for the euro to work when more political cooperation is needed. Contrary to expectations in the rest of Europe, investors say the economy in the US will emerge better than that of Europe from the crisis. With eurozone exposure undesirable and the EU lacking sufficiently strong political institutions to safeguard stability, investors are mainly looking to increase their investments in the US.

The sentiment of Finnish and Norwegian investors was measured in October and November when the markets were volatile. The data for Swedish investors was collected in December against a more positive macroeconomic outlook.

 

News Roundup
• Barclays reports that H&M will be one of the fastest growing retail companies during 2012. The bank expects that H&M’s profits will rise 3.5% in 2012. As with many other Swedish companies, H&M generates significant sales in Asian markets and has exposure to the German market.
• Danske Bank will cut 2,000 full-time jobs in the coming three years. The reduction follows a pattern seen at the four major Swedish banks, which cut 6,000 jobs last year. Danske Bank’s biggest problem is Ireland, where it lost dkr 1.6bn in the fourth quarter of 2011.
• The Swedish government received sek 38.5bn ( € 4.4bn) last year from the selling of companies that it owned and dividends. This year, returns will be less from shares in companies such as Nordea, Telia Sonera and SAS if the trend from company reports continues. The Government will still profit from a high return from companies that it owns such as Vattenfall, LKAB, Svenska Spel, Systembolaget and Sveaskog.

Hot Topics
What everyone is talking about
• Corporate bonds – which credit will be best?
• Equities – will investors in the US or Europe be rewarded first?
• Emerging markets debt – which currency to go with in the crisis?
• Risk management – when can investors expect markets to stabilise?

 

Equity confidence

Equities is still the most interesting asset class for investors in Sweden, but we can see investor confidence in equity funds decreased when we look at fundflow data. In total, the outflow from equity funds was sek34bn (€3.87bn).

The sentiment on European equities was mostly neutral in Sweden in December 2011, which was different to attitudes in Finland and Norway in October and November, when investors had a more positive outlook to investing in Europe this year.

The sentiment on European equities became more negative in December 2011, compared with February of last year. In equity funds, investors said they would be looking to increase their investments in the US and Northern Europe. Generally, investors in Sweden invest a large proportion of their funds into equity funds in the Nordic countries.

Diversification

Global funds still constitute a substantial part of fund investments. Diversification between Swedish funds and global funds is an attractive option when investors want to balance their portfolios between safer investments and riskier assets.

Investors said they are attracted to companies in the current economic climate that are not highly indebted and have exposure to the Asian markets. Emerging markets are still an interesting option to investors, but safe investments in the Western world are mostly preferred.

Investors in Sweden are mostly neutral when it comes to investments in EM government bonds this year. Interestingly, investors in Finland and Norway were overall positive on emerging markets.

Compared with one year ago, Swedish investors are less positive on EM equity, stating a preference for investments in Western markets.

Still, pension funds in Scandinavia have always been progressive when it comes to EMs. Some have 50% of their investments in EM debt. In the long run, EMs are interesting and, over time, investors are expected to shift from hard currencies to local currencies.

Growing demand

In Sweden, savings into pension funds constitute a higher proportion of fund savings than before. Half of all new savings are now into pension funds.

Overall, there is a growing demand for fixed income products as an active part of portfolios. Bond and money market funds showed a net inflow in the third quarter of last year totalling sek31bn (€3.5bn), of which money market funds accounted for sek15bn (€1.7bn).

That can be compared with the previous quarter when nearly sek6bn (€680m) flowed into bond and money market funds, including sek2bn (€230m) for money market funds. Investors say when equity investments are too risky and government debt yields less, they look to invest in stable corporate bonds.

Many investors expressed a specific interest in corporate bonds from the US and Northern Europe. High-yield and investment- grade bond products are desired as the economic crisis continues.

New trends

Absolute return is a new trend among institutional investors in Sweden. Investors said absolute return is an interesting option when there is good management of the funds. Absolute return funds offer an attractive alternative to investors when markets are volatile.

Hedge funds are also interesting when spreading risk, but some investors are still concerned hedge funds are harder to predict than the markets. Even so, investors are generally looking to increase their allocation to Ucits-regulated hedge funds.

The Swedish property market is a lucrative market. Commercial property forms part of the portfolios of many institutional investors. The property market in Sweden grew by 5% in 2010, which was at a higher rate than the average global percentage and for other countries in the Nordic region. The Swedish property market is now going through a correction. Investors believe the downward trend will continue.

Investors also said that they are looking to decrease their allocation of funds into gold, which has seen greater demand during the crisis.

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tom@ybc.tv

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