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MONEY

Swedish investor weighs in on financial risks in 2023

What will 2023 be like? What will happen to inflation? How will the war in Ukraine affect the economy going forward? Here's what Swedish investor Christer Gardell, founder and CEO of the fund Cevian Capital, has to say.

Published: 26 December 2022 09:11 CET
Stockholm
Swedish investor Christer Gardell, CEO of Cevian Capital, discusses what to expect in 2023 - in terms of financial risks. Photo by Philip Myrtorp / Unsplash

Looking back on 2022, Gardell believes that the stock market has gotten a little better at taking a beating – compared to two decades ago.

“Once we were out of the pandemic, inflation, energy prices, and a war in the immediate area hit. That is quite a lot of uncertainty at once. If this had happened 20 years ago, there would have been total panic in the stock market. So, the stock market has gotten a little better, I think, at taking a beating.

“During all the strange years when money has cost nothing, quite a few bubbles have been inflated in the system, strange companies that earn nothing and barely have any operations still valued in the billions… And we got strange phenomena like cryptocurrencies and these SPAC companies (special purpose acquisition companies)… Many of these bubbles have been scrubbed away in 2022,” Gardell said.

What will 2023 look like?

Gardell thinks 2023 might start off quite rocky.

“It could be quite dramatic at the beginning, I think. But the recession will surely go away in 2023. It is uncertain how the war in Ukraine will develop… If it escalates, it is a bad scenario, but if there were to be peace, it is clear that it would be favourable for the stock market.

“Those who should be worried are those who had borrowed heavily during the happy days when money was free – the real estate sector and private equity (venture capital companies), as well as telecom companies.

“Other companies that will have a hard time are companies close to consumers. In Sweden, the interest rates hit people immediately, as most people have short-term and variable interest rate loans. Then you have the energy prices. They have a strong dampening effect on purchasing behaviour. It is probably impossible to raise consumer prices anymore, as customers have no money. If you raise the prices, you lose too much volume.”

Inflation changes

The investor believes that the key challenges related to inflation have already been solved.

“We had a whole generation that didn’t know what inflation and interest rates were. Now they know. Now they know that money costs money…

“We see how shipping prices have started to fall, and many raw material prices have also fallen. So, I think the inflation problem is actually solved. The central bank (Riksbank) does not need to intervene anymore,” he concluded.

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MONEY

‘Swift and Eurovision’: Swedish inflation fell less than expected in May

The year-on-year inflation rate fell to 3.7 percent in May, according to new figures from Statistics Sweden.

Published: 14 June 2024 09:57 CEST
'Swift and Eurovision': Swedish inflation fell less than expected in May

This is a drop of just 0.2 percentage points in so-called CPI inflation since April. Experts had predicted that inflation would fall by twice as much, to 3.5 percent.

“This is a setback,” Alexandra Stråberg, chief economist at Länsförsäkringar, told the TT newswire.

According to Statistics Sweden, inflation in May was primarily affected by increased housing costs, mainly due to rising interest rates for household mortgages, which pushed up the inflation figure. This was mitigated by some extent by lower electricity, and fuel prices have also had an effect.

“The inflation rate fell in May, even though most service prices increased,” Statistics Sweden statistician Caroline Neander said in a press statement. “It was electricity prices which mainly contributed to the decline.”

Month-on-month, May saw a rise in the prices of transport services – like car rentals, train travel and flights – as well as increased prices for hotel stays, package holidays and food.

This could be due to two major events which took place in Sweden in May: Taylor Swift concerts in Stockholm and the Eurovision Song Contest in Malmö.

“There could be a temporary Swift or Eurovision effect here,” Stråberg said.

The head analyst from Nordea, Susanne Spector, said that this could partially explain the rise, but added that it wouldn’t explain the rise in the cost of services too.

“That’s a risk factor for the central bank,” she told TT.

What does this mean for interest rates?

On June 27th, Sweden’s Riksbank central bank is set to make its next announcement on Sweden’s key interest rate, just one month after it lowered the rate for the first time in eight years.

Even before these inflation figures were announced, Riksbank governor Erik Thedéen made it clear that the bank is not planning on lowering interest rates, stating there would need to be “very large changes” to even begin to discuss it in June – and unexpectedly low inflation figures for May would not be enough on their own.

Now that inflation rates have dropped less than expected, it looks even less likely that the Riksbank will lower the key interest rate in two weeks’ time.

Spector from Nordea believes that the next interest rate drop will be in the autumn.

Länsförsäkringar still predicts three further drops to the interest rate this year, although Stråberg said these figures had increased the likelihood of the bank only cutting the rate twice.

“It depends on next month. There are a lot of months to go which need to confirm the fact that inflation is on a downward trajectory,” she said.

According to chief economist Robert Boije, the most important takeaway from the new figures is the fact that year-on-year inflation did not rise.

“Today’s inflation figures for May from Statistics Sweden don’t give any reason not to believe the conclusion that the spectre of inflation in the Swedish economy has been vanquished,” he told TT.

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