The Stockholm Stock Exchange, also known as Nasdaq Stockholm, is the primary securities exchange of the Nordic countries. Founded in 1863, it is also a key hub for European capital markets. It is beautifully situated in an historic square where you can feel the history wash over you.
In America, the Nordic region is badly understood as a “socialist heaven” with high taxes and high debt. This was true in the 1990s, but the Swedes learned from this experiment and shifted gears.
Sweden reduced public spending, cut the top marginal tax rates, and lowered taxes on property, gifts, wealth and inheritance. Let’s take a closer look at today’s entrepreneurial Sweden, a country of 10.7 million, which is bigger than Denmark and less state-dominated than Norway.
To begin, Sweden has about twice as many billionaires per capita as the U.S. and provides parents with school vouchers. Swedes are willing to take calculated risks, with 22% of owning shares directly, plus many more through funds, including – in contrast to our Social Security Trust Fund – a healthy allocation of stocks in their national pension plan.
Sweden’s economy is projected to grow about 2% this year with muted inflation at 1.5%. Its debt-to-GDP ratio is just above 35% – compared to America’s 102%. Not bad at all.
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The center of Sweden’s economic and political gravity has shifted to the center-right. Sweden has almost as many unicorn startups as France and a strong stock market with a robust IPO market over the last decade.
Sweden has 73 ADRs trading on the U.S. market, and some of the better-known names are H&M (HNNMY), Nordea Bank (NRDBY), Swedbank (SWDBY), SKF (SKFRY), and Saab (SAABY).
Then there is the iShares MSCI Sweden ETF (EWD). This ETF is heavily weighted towards industrials at 45% of the basket, followed by financial services at 24%. It is fairly concentrated, with the top ten stocks comprising about 55% of its total value.
At the top of the list, with a weighting just shy of 10% of this ETF, is Spotify (SPOT) – a popular music-streaming service operator. This is perhaps the best-known and most popular stock amongst investors. The main reason is that it had a great run until about a year ago and has since pulled back into a potential buy price point.
Spotify stock has fallen 43.1% over the past year but is still up 177% over three years and 64% over five years.
The debate about Spotify is weighing strong user growth and upcoming earnings expectations against the stock trading at a premium compared to industry averages. The valuation debate is remarkable given that the stock has fallen so much over the last year.
Spotify seems to be leaning more into producing long-term growth over month-to-month subscription metrics, spending more on technology and business development.
I use Spotify (with the ads, of course), and there is no doubt of their leadership position, but the stock is a different matter. That Spotify is an international stock with a home in Sweden would surprise most Americans.
The Cabot Explorer searches for the best stocks throughout the world, including America. Find out our decision on Spotify stock in our next issue by subscribing now.
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