When will the US market drop?
Two steps forward, one step back has characterised the market upturn over the past year, so the downturn in November was perhaps not particularly surprising. Nasdaq Stockholm fell by more than 3%, driven by profit-taking combined with very negative buzz surrounding the housing market, the effects of which have spread to many more sectors.
The surprising thing is not that Nasdaq Stockholm, after yet another strong year, is recoiling slightly, but that the US is not. The fact is that the US is breaking records almost daily, partly driven by upcoming tax reductions (which it seems for the first time will go through), but primarily by unlikely price upturns for a few large tech firms.
If Nasdaq Stockholm is already a little nervous, how will it manage a downturn – even if only a profit-taking – that is going to come sooner or later in the US?
The weakness in the housing market is likely to persist for a couple of quarters and probably result in lower than expected growth in Sweden for the next two or three years. The rate of new construction must slow down fast, which is likely to happen the hard way through massive price reductions and projects/land returned to the local authorities (and thus never started and, unsold tenant-owned flats turned into rental units. Perhaps we will finally understand the significance of the monthly housing association fee to the selling price and thus count m2 plus debt in the association when we buy flats in the future.
Several transactions characterised the portfolio during the month. Holmen sold land in Jämtland at almost four (!) times book value, and half of that is unusable (!). Additional proof that we cannot see the forest for the trees.
Dometic made a major acquisition in the US, which is likely to increase the company’s profits by 20% in the next few years. The stock is now being traded at a 30% discount against the rest of the market, in spite of a fabulous market position, high margins and high organic growth.
We increased the holding in Investor during the month because the discount suddenly rose again to nearly 25%.