The economic indicators coming from Sweden need to be better oriented.
For example, retail sales fell by 9.4% in February, the most significant drop since 1992, when the country experienced severe turbulence in its banking sector.
High inflation (9.7% in February), which erodes the purchasing power of households, making access to credit more difficult and expensive, is the immediate cause of this decline. But they are not the only ones. For example, Swedish families are among the most indebted in the world (their debt exceeds 200% of GDP), a level of indebtedness strongly linked to mortgage credit for a home purchase.
Households face a twofold problem. On the one hand, the overwhelming majority of loans are granted at variable rates or with a short fixed-rate period before switching to variable rates, which means that debt charges have increased significantly. On the other hand, real estate prices have fallen by some 15% since the post-pandemic peak. This discourages potential buyers from starting immediately and leaves many homeowners unable to repay their loans, including if the underlying property is sold.
All this inevitably weighs on the internal market, which is therefore at a disadvantage. This challenging domestic demand environment has increased the risks of investing in the Stockholm market and has prompted us to eliminate it as part of the defensive portfolio.
However, other investors can continue to invest there. The geographical footprint of the large capitalisations in this market goes far beyond the borders of the Kingdom. It is also one of the European innovation and research and development leaders.
The competitiveness of the Swedish economy is essential and should remain so. We, therefore, continue to invest in them as part of our portfolio.
