Essity showing good health
The Swedish stock market rose 2.7 percent in August and appears at first glance to be one of the best this month. But if the performance of other markets is converted into SEK, Stockholm failed to keep pace with the world index.
The pattern continues; US stocks, highly dependent on FAANG, are strong while emerging markets are losing ground. It was Turkey’s turn to see its currency and securities markets fall sharply, which affected many emerging markets. The krona also appears to be considered as an emerging market currency, but in Sweden’s case shares have risen and offset the currency losses. Sweden should not be much affected by Turkey, but uncertainty surrounding the parliamentary elections may have had a negative impact on the krona. Otherwise, the Swedish economy is doing well and companies are delivering strong reports. Interest rates have remained stable, but credit spreads widened slightly after shrinking in July.
Many of the fund’s key holdings reported in July and therefore already made last month’s comment. We were awaiting Holmen, and in response to August’s report the stock rose around 15 percent. For unknown reasons it had fallen during the first half of the year, but is now justifiably level with the rest of the market. The fund rose 2.6 percent in August and is up 4.9 percent so far this year.
The fund bought Essity stock in August, which has been weak this year due to higher pulp prices and a downgrade to earnings forecasts. However, the company has been well able to offset higher costs and forecasts now suggest that earnings will rise by 10 percent. We think that being able to offset rises of 50 percent on its main inputs is a sign of good health.
On the other hand, the fund has reduced its exposure to bank shares following good performance over the summer. The investment in DNB generated very good returns, in both absolute terms and in comparison with investments in Swedish banks. Expectations of a boost from higher interest rates seem to have been pushed forward again.