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Market insight Sweden Q2 2014

Sentiment regarding the other equity asset classes shows a reverse picture. Doubts about high valuationsalt='' and the direction markets will be taking lead to increasing numbers of fund selectors choosing to keep their equity allocations unchanged, rather than to increase them. This increased doubt is reflected in Swedish macroeconomic sentiment. The country’s sentiment reading is now below European average for the first time since records began, with the number of interviewees expressing a neutral macroeconomic outlook up 19 percentage points to 44%.

Emerging markets equities

Sentiment surge in line with Pan-European trend

alt=''The recent spike in fund selector sentiment regarding emerging markets equities across Europe has not pass Sweden by. More than twice as many Swedish fund buyers are planning to step up their allocation to the asset class than in February at the last Expert Investor Nordic event. Some 44% of interviewees will increase their exposure during the next twelve months. In contrast, only one in six fund selectors are planning to decrease their allocation.

Whereas Swedish fund selectors were especially upbeat on Asian stocks last winter, while being net neutral on wider GEM equities, this pattern has now reversed.  Swedish Asian equity sentiment is again on par with wider Pan-European scores, with 32% buyers and with the largest chunk of investors keeping their allocation stable.

Swedish EM equity investors still greatly differ from their European peers in one aspect: their love for small cap companies. Whereas the whole of the rest of Europe has a strong preference for large caps within the emerging markets spectrum, 46% of Sweden’s fund selectors favour small caps, while only 29% prefer larger companies. They combine their liking for small cap companies, which might well follow from their preference for domestic small caps, with a strong EM growth bias. Sweden’s fund selectors share this passion for growth companies with their Nordic neighbours Denmark and Norway.

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US equities

Temporarily out of favour?

The contrast in sentiment trend between US equities and EM equities is striking. While EM sentiment dropped sharply in the summer of last year following tapering talk by the Fed, appetite for US equity only rose further. But perspectives have reversed now: EM equities are the most popular equity asset class in Sweden now, while US stocks are rather unpopular, to an extent only matched in Europe by Norwegian fund selectors.  Back in February, 42% of Swedish fund selectors were planning to increase allocation to the asset class. In a matter of months this percentage has dropped to a record low of 8%, with 64% keeping their exposure unchanged.

European equities

Cooling down a bit

Fund selector sentiment towards European equities has followed a similar pattern as its US counterpart over the past 18 months, albeit in a less radical fashion. After topping in February this year, appetite for the asset class has come down quite a bit. A third of Sweden’s fund selectors continue to increase their exposure, while only 12% say they will scale down their allocation.

Japanese equities

Doubts rising

Japanese equities have traditionally been an asset class where Swedish fund selectors don’t have particularly strong views about. As always, ‘hold’ was again the most popular answer to the question of what they were going to do with their allocation to the asset class. But this time, the percentage of neutrals had risen to 56, reflecting increasing doubts about the effectiveness of Abenomics and the credibility of the Bank of Japan, which has committed itself ‘to boost asset prices.’ 

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Fixed income

Bearish sentiment continues

Sweden’s fund selectors are Europe’s biggest pessimists on developed market government bonds. None of the interviewees will step up their allocation to either of the two asset classes during the next 12 months. After a bearish stint of more than three years, still almost four in ten fund selectors are decreasing exposure to government bonds.

Developed market corporate bonds, with 16% of fund selectors increasing allocation, and emerging market debt are the relatively positive outliers in a generally depressed bond environment. But sentiment is still net negative on all fixed income categories.

Absolute return

Saturation sets in

With relatively many fund selectors undecided about their equity allocation and avoiding fixed income investments, one might expect them to turn to absolute return in great numbers. The percentage of fund selectors increasing their allocation to absolute return, though, is considerably lower among Swedish investors than the Pan-European average. Only 28% say they will increase allocation, while roughly half will keep it stable. There might be a straightforward explanation for this though as, after years of increasing their weightings, Swedes seem to be finding their absolute return limit, with the number of ‘holders’ drifting up consistently. 

Part of the Bonhill Group.