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The blackest swan I have ever seen. It is hard to think of a clearer description of Covid-19 and its impact on the world, health and stock exchanges.

We all understood that production problems in China would create worries and lead to a lost quarter or two. But that basically the entire Western world would shut down for a couple of weeks, maybe more, was probably unreasonable to predict.

The world is in major crisis with people dying, and communities and loved ones suffering. 2020 has begun badly and is likely to get worse before it gets better from a social perspective.

The economic effects are impossible to predict right now, but that we are already in recession and economic freefall is beyond reasonable doubt. High unemployment, lower consumption and continued zero interest rates mean we are in short-term deflation.

But the wheels will start turning and production will move home – who will dare to be 100 percent dependent on China again? –  resulting in higher costs. Governments will take on huge debt and there is likely to be an expansion of health care in almost all countries. This means inflation is likely within a couple of years, and perhaps the end of low interest rates.

Carnegie Sverigefond has fallen like much else, and we know that during large slides most things fall regardless of quality or long-term prospects. In the long run, however, this is usually corrected and strong companies with good balance sheets emerge as winners, which means a number of our companies.

At the beginning of a crash, shares with low volatility and a high P/E ratio often manage, while the opposite applies to value companies with a low P/E, as has been the case this time. But if we look at the key figures, we can see that several of our companies are trading at the same levels as during the financial crisis, such as Securitas and SKF, and the stock market as a whole is traded at around 1.5 times equity. The average over the past 20 years is a good bit over 2 times equity. On the other hand, this has fallen to 1.2 times equity during a couple of crashes.

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Sverigefond A

Carnegie Sverigefond invests in listed Swedish equities and contains the country’s best and most stable companies. We invest long-term in value companies with sustainable businesses, strong balance sheets and attractive...

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