Some argue the Vikings discovered America about 500 years before Christopher Columbus. In the same pioneering spirit, Sweden’s Riksbank is leading the US Federal Reserve on interest rate cuts, having made two already this year. The Riksbank’s looser approach to monetary policy reflects the increasingly precarious position of Sweden’s economy. But its woes could be a warning sign for elsewhere in Europe too.
The trouble is that this is hard to discern from Sweden’s stock market. Swedish equities have outperformed European peers this year in both krona and dollar terms. That is down to the Riksbank: rate cuts mean less pressure on over-indebted households and property companies. But the rally may soon run out of steam. Investors should look to Sweden’s vast industrial sector for signs of what is to come.
True, the more pressing issues this year have been a Swedish housing bubble that has left consumers overleveraged and disposable incomes stretched. Other local problems include corporate bankruptcies at a 30-year high and signs of weakening employment.