Christmas is Approaching

The collective eyes of the EU countries will be directed towards us and the priorities that the government has set for its presidency, namely:

• Security - unity

• Resilience – competitiveness

• Prosperity – green transition and energy transition

• Democratic values and the rule of law

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Given the state of the world, it is a tough but important task — if the Russian aggression against Ukraine has shown anything, it is how central it is that democracies and market economies stand united against authoritarian forces. During the next six months, Sweden will thus lead the largest association of such democracies: the European Union.

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Here at home, the government will also have their hands full. Electricity prices, surging inflation and interest rate increases are just a few troublesome variables. At the beginning of next year, there will also be a large labour union renegotiation and the central question is how high the wage demands will be. A 1970s situation must not be repeated with an inflationary and wage spiral without end. I am an optimist at heart and truly believe that the political parties have learned from previous decades: high inflation is a redistribution mechanism without mercy, while a stable monetary value over time provides the necessary conditions for both investment and higher purchasing power.

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But in the midst of it all, there are bright spots. The industrial sector is fundamentally strong. Our conditions for exporting should be fine as long as things do not become crisis-like in our surrounding world. Although the beginning of December was very cold, it does not look like it will be a record-cold winter, which means that the natural gas stored in Germany will be enough, thus there are conditions for slightly lower energy prices than what the worst forecasts suggested. This also - most likely - avoids a hard crash landing in Germany.

Although equity markets have been volatile recently, several successful equity issues have been carried out — not the least in the unlisted sphere. Dry powder exists, but it seeks safer havens. Companies with genuinely solid business models, exceptional management, paying customers and profitability will be able to both cope with the recession and plan for the future. Consumers will consume in 2023 too. They will want to buy technological solutions that increase efficiency and reduce costs. What increases productivity will prevail, and it is the ones who adapt that will do best. And as for this, I note that Sweden and Swedish companies have good experiences to fall back on: incremental productivity increases and adaptability have characterized Swedish industrial ability since the Second World War.

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By the beginning of next year, the war in Ukraine will have been going on for a year. Of course, we can not tell if it will last for another year or even more. But we have adapted to the situation, hence we will be able to handle it. The Riksbank will have a new head from January 1 in Erik Thedéen, who was Anders Borg's State Secretary once upon a time and then head of the Swedish Financial Supervisory Authority (FSA). This also ensures continuity and stability. And regardless of what one thinks of the government's policy, it has a majority behind it in the Riksdag, which signals less parliamentary turbulence ahead.

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I might be an optimist by nature, but I think 2023 will be a far better year than 2022. Collective psychology indicates that capital will once again be deployed, but accompanied by stricter criteria and backed by more solid due diligence. We will have started to adjust to a higher interest rate environment and we will be able to weather the recession. Step by step, we will emerge from the hard times like so many times before.

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But before that, we will treat ourselves to a nice Christmas holiday. And on this topic, I would like to quote the Finnish-Swedish poet and writer Zacharias Topelius, whose Christmas carol (composed by Jean Sibelius) is one of my personal favourites. The last verse sums up my wish:

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To high, to low, to rich, to poor

come, have a holy Christmas holiday.

Come childlike, come warm-hearted

in the world's winter time.

You only who

not shifting,

my Lord and my King, come.

To high, to low, to rich, to poor

come happy and warm-hearted.

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To Stadsholmen Equity's clients, partners, friends and colleagues, we wish a very Merry Christmas and a Happy New Year 2023!

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Stockholm on December 22, 2022

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Sven Otto Littorin

Partner, Stadsholmen Equity