Tuesday, 5 November 2013

Investing in the Swedish OMXS30

Here is the second EFA economy I investigated; Sweden. Here it is:
Swedish Economy & Equity Investment
Population (2012)
Krona (SEK)
2012 GDP
US $552 billion
2012 GDP Growth
IMF GDP Growth Prediction for 2014
2.3%  (1.1% predicted for 2013)
8.0% (August 2013)
0.8% 2012 average (ranging from 1.92% to -0.11%)
Budget Deficit/Surplus
Positive €865 million (+0.2% GDP)
Currency Rate
SEK/USD 0.16
IMF CPI Growth Prediction for 2014
2.2%  (1.2% for 2013)
Main Sectors of Economy
Services 70.9%, Industry 27% (Car manufacture, timber, iron ore, telecoms, pharma) - Exports of goods & services account for 50% of GDP
Main Exports

Vehicles & Machinery
Paper and Paper products
Iron and Steel products
Main Export Partners
Norway 10.4%
Germany 10.3%
UK 8.1%
Main Imports
Petroleum & products
Main Import Partners
Germany 17.4%
Denmark 8.5%
Norway 8.4%
Main Stock Exchange
Stockholm Stock Exchange (OMXS30)
Market Cap
US $470.1 billion (2011 – not certain)
Market Performance YTD

Swedish Exports

·         The Swedish economy is structurally very stable. The economy is also quite diverse. However, it’s vulnerable to problems in Europe, the majority of exports and financial lending go to within the continent. It’s largest export partners are Germany and Norway, making up over 1/5 of exports, and these economies are prosperous & relatively stable. Another Euro
·         Sweden also collects the highest tax revenue as a percentage of GDP in the world, there are fears that this could put off future foreign investment and curb consumer spending.
·         As Europe comes out of recession & growth picks up, Sweden is in a good position to gain from increased exports.
·         Another risk is that the strong Krona makes Swedish goods & services less attractive to other countries. For example; in Q1 2013, Sweden ran a surplus of SEK 19.4 billion. However on closer look, this is only because the value of imports decreased by 11% from the year before, while the value of exports still decreased by 10% from the year before. This is particularly bad for Sweden who relies heavily on exports. The Swedish Riksbank has chosen kept the repo rate at 1.0% this month, with two of the board members voting to decrease the rate, so they are trying to encourage spending & maybe competitively devalue the Krona slightly.

·         The 5 biggest companies on the OMXS30 are: Nordea Bank (NDA-SEK.ST) – Banking; Volvo Corporation (VOLV-B.ST)- Car Manufacturing;  Ericsson Telephone Company (ERIC-B.ST)- Telecoms; Skandinaviska Enskilda Banken (SEB-A.ST) – Banking; Svenska Handelsbanken (SHB-B.ST) – Banking
·         The OMXS30 is operated by NASDAQ & experienced drop in 2008 along with other countries, but had experienced less of bubble growth, so didn’t fall anywhere near as much as the FTSE. The OMXS30 generally has had a less pronounced boom & bust cycle.

XACT OMXS30 is an ETF that tracks the index. It has performed well in the past year and spreads exposure to individual shares relatively evenly.
Swedbank Robur OMXS30 ETF also tracks the index as closely as possible, with holdings spread over different sectors. It has achieved 26.76% return in the last 12 months.

Sweden has a structurally good economy and is quite stable. As Europe picks up, Swedish exports (which make up 50% GDP) are set to gain. Although a strong Krona could dampen this, Riksbank is showing signs that it is prepared to competitively weaken Krona to help exports. One factor of the current economy is low inflation or even deflation,(inflation only averaged 0.8% because of a hike in petroleum VAT causing 1.92% inflation temporarily) As inflation in Europe averages higher, Sweden will become more competitive in the next 12 months. The OMXS30 has gained 21% YTD and I would expect an ETF tracking it to gain in the next 12 months, although that is rather at the Krona’s mercy. 

No comments:

Post a Comment