There is a clear risk of a correction in the Swedish housing market. We therefore prefer companies with operations abroad and in infrastructure.
After relatively weak summer months for the stock markets, September was able to offer generally rising share prices, not least in Sweden. In recent months, however, Norway has been the best market in the Nordic region on the back of higher oil prices. At the end of September President Trump presented a tax proposal that would include a significantly lower tax burden for American companies, which fuelled expectations of high earnings growth. Geopolitical concerns such North Korea have not affected the markets to any significant extent. Interest rates have been stable but credit margins have widened a little, which has not happened for a long time. The Swedish krona weakened when it became apparent that Stefan Ingves will stay on as the Governor of the Riksbank. Carnegie Strategy Fund rose 2.6 percent in September.
Swedish construction-related companies have been weak performers in late summer. Some companies with a high dependency on domestic consumption have also been relatively weak. The media has even reported on negative signs in the housing market. We have deliberately chosen to avoid companies with strong dependence on the Swedish housing market. This also applies to banks in which the fund owns bonds, Nordic banks and/or banks with lower exposure to housing loans. Unfortunately, the market is not always so careful in making distinctions.
Despite relatively strong reports from Skanska and Bonava, these fell between June and September by up to 13 percent. Skanska has just over 10 percent of its sales related to Swedish housing construction. Bonava is certainly a pure housing developer but most of its projects and most of its growth are outside Sweden (mainly in Germany). NCC also fell during the period and, likewise, does not have any great exposure to Swedish housing development, but instead is dominated by infrastructure and commercial projects. A profit warning in September after its report caused a negative share price response, but the share had already lost 15 percent by then.
Given the performance of the Swedish housing market in recent years, there is a risk of a correction, which means that we continue to avoid companies with high dependence directly and indirectly on Swedish house prices. However, we believe that the share price reactions in the construction-related companies that we own are excessive given the nature of their business. Skanska and Bonava have even risen slightly in September, but not by as much as the market.
This month the fund switched its SEB bonds for SEB shares. This was mainly because we believe the stock is a better option given the current valuation. The bond provides interest to maturity of 2,5 percent while the share has a dividend yield of 5 percent. SKF’s stock has fallen unjustifiably far since the report. The fund has therefore bought shares, mainly financed by a reduced holding in Industrivärden.