An undecided vote
There is only one parliamentary assembly of 349 members in Sweden. Once in place, it votes to appoint the Prime Minister. Traditionally, the party with the most votes puts its candidate first. The candidate must not win the majority of the votes. Still, he can't be refused by more than half of the parliamentarians to become the Head of Government.
The current Prime Minister received only 101 votes out of 349 when she was appointed. But the 173 votes against were insufficient to reject his candidacy. With eight parties expected to win seats in the September 11 election, the identity of the next Prime Minister is uncertain. All the more so as the last soundings place the left block and the right block elbow to elbow. As a result, the Prime Minister's Social Democrats, environmentalists, the Left Party and the Centre Party would obtain a slight majority together.
However, the right-wing parties, particularly the Swedish far-right democrats, have the wind in their sails because the subjects imposed in the campaign are promising for them.
The economy has little to say
The main subject of this year's electoral campaign is crime and severe violence, which has risen sharply over the past decade. In 2021, more than 300 shootings resulted in 46 deaths across the country. Most of the victims were gang members, but this settling score in the criminal environment creates a climate of fear and anxiety among the population.
Health policy is the second most commented topic. The management of the coronavirus epidemic has been far from perfect. Many failures in nursing homes have resulted in the death of the elderly. And more generally, the shortcomings of the health system have come to light.
Finally, soaring energy prices, which erode the purchasing power of households, are a major political issue in Sweden and all European countries. In this area, the main political divide lies in the place to be given to nuclear power in the country's energy mix. The right favours a massive revival of the atom, while the subject divides the left.
1st European electricity exporter
Thanks to major investments in renewable energy in recent years, Sweden is ahead of the rest of Europe, which is too dependent on Russian energy. While nuclear still provides 30% of the electricity produced, wind represents almost 20% and hydro more than 40%. The gas crisis does not threaten the country's electricity supply. On the contrary, Sweden's favourable energy mix enabled it to become the leading European electricity exporter in the year's first half.
Although the risk of shortages is ruled out, rising prices nevertheless affect Swedish consumers. At 8.5% in July, inflation has been at its highest since 1991. As a result, we expect less dynamic consumption in the coming quarters. The central bank continues to increase the rent of money after having already raised its key rate by 0.75% in recent months.
The tightening of credit conditions has already slowed down the real estate market. As a result, housing prices are down, and the boom in construction in recent years is over.
Swedish firms heavily depend on exports, which account for almost half of the GDP. As a result, they will have to cope with the slowdown in global demand. Therefore, a marked slowdown in economic growth is to be expected.
A strong economy, essential assets
Sweden has several advantages in overcoming the less favourable economic situation in the coming quarters.
With public debt reduced to less than 40% of GDP, the next Government will have the means to support household consumption through budgetary measures. It will also be able to continue the recovery of public investment that began this year. To keep the climate transition, accelerate digitalization and strengthen the social protection system, 74 billion crowns – €7 billion - (0.9% of GDP) will already be spent this year.
On the other hand, Swedish firms are generally solid and able to overcome the next cyclical trough. This is because they have developed a great culture of innovation that allows them to keep pace with market developments and keep a place in the sun.
In practical terms, the Stockholm Stock Exchange is small but with exciting diversification. It gives hope of an attractive return for limited risk. Buy 5% Swedish shares regardless of your risk profile.
Swedish krona bonds are also attractive for investors who prefer a defensive or neutral strategy. They are rock solid and reduce the overall risk of your portfolio. Moreover, with the recent increase in money rent, they offer interest rates of around 2%.
The undervaluation of the krone vis-à-vis the euro also suggests a gain in the exchange rate. Therefore, we dedicate 5% Swedish Krona bonds to our portfolio.
