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“Stock markets are rising, long-term interest rates have moved slightly upwards, credit margins are shrinking and commodity prices are rising”

Coherent market movements indicate the world economy is strengthening. Stock markets are rising, long-term interest rates have moved slightly upwards, credit margins are shrinking and commodity prices are rising. In the stock market, it is also the more defensive sectors that are developing relatively weakly while IT shares continue to skyrocket.

Germany is the world’s fourth largest economy, while total German market capitalisation amounts to only that of Apple. Is this realistic? Without answering the question, we can observe that the pandemic has undoubtedly benefited IT stocks, partly due to the low interest rates and partly due to the fact that many of the products and services are in greater demand due to all the restrictions introduced. On the other hand, it seems reasonable that other industries will make something of a comeback as our societies and our behaviours gradually return to what we feel is normal.

Most major companies submitted their quarterly reports in July. Holmen was an exception and reported in August. Its operating profit decreased by 6 percent, but was still around 5 percent better than the market’s average expectation. The losses in Paper were admittedly larger than expected, but were offset by positive developments in forestry and packaging. In connection with the report, it was also announced that Holmen had reached an agreement on an acquisition of Martinssons, one of the leading producers of sawn and processed wood products with an annual consumption of timber corresponding to Holmen’s harvest in northern Sweden. The acquisition is expected to add around SEK 100 million in profit and almost SEK 2 billion in sales. Holmen also announced that the board is convening an EGM due to a proposed dividend of SEK 3.50 per share after the spring AGM resolved against a dividend. As dividends are normally an important factor for equity investments, the fund welcomes this decision. We hope more companies will follow suit.

The fund increased its holding in SCA slightly during the period. At the end of August, SCA announced that the production of graphic paper in Ortviken will discontinue and it intends to boost capacity in mechanical pulp. Although this decision will mean restructuring costs and impairments in the short term, it seems logical in the longer term. SCA is too small in the segment to obtain sufficient economies of scale, and the future prospects and demand for printing paper are difficult to assess.

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