Betting on the New Swedish Model

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.

Such political revolution happened in Sweden just last night when the Social Democrats — architects of the much lauded "Swedish model" — were voted out of office. After holding power for 65 of the last 74 years, Social Democrats were handed their worst defeat since 1912. Swedish voters opted for an economic model that looks a lot more like Maggie Thatcher than Scarlett Johansson.

The Swedish model always has served as Europe’s answer to U.S.-style, free-market capitalism. And granted, the Swedish model always has seemed to perform better than the stagnant economies of European rivals France and Germany. Indeed, the Swedish economy is growing at an annualized rate of 5.5% — almost double the European Union average of 2.8%. And while the United States is struggling with both the budget and current account deficits, the Swedish government is running a surplus in both.

But it turns out that much of the Swedish successes have been due to stealth free market reforms — as well as just plain statistical smoke and mirrors. The most glaring example of the latter? Sweden’s official unemployment rate stands at 5.7%. If one includes people on sickness or disability leave or government job-training programs, the real unemployment rate is between 15% and 20%.

The agenda of Fredrik Reinfeldt, leader of the winning center-right Alliance, is a familiar one. He has pledged to lower taxes, deregulate the economy and sell state shareholdings in listed companies. This last move in particular will clear the way for cross-border mergers or acquisitions of listed companies. And that will send the Swedish stock market skyrocketing to record levels.

Ericsson’s CEO Carl-Henric Svenberg and other key industrialists are firmly behind Reinfeldt’s agenda. Swedes already have benefited from some deregulation of the nation’s telecom, auto and banking sectors during the 1990s. But the impact of Reinfeldt’s reforms could dwarf those effects. Market reforms also will give a big boost to the Swedish crown — the nation’s currency. Such currency appreciation will serve as an additional tailwind to the returns of U.S. investors.

So how to best place your bet on the new Swedish model? Buy the Swedish ETF at market (EWD) and place your stop at $24.90. Through the ETF, you’ll be buying into Swedish companies such as telecom manufacturer Ericsson, truck maker Volvo and clothing retailer H&M. The country’s new leadership may look to sell the nation’s holdings in other Swedish ETF components that include financial services company Nordea, telecom company TeliaSonera and airline SAS. There are no options on this Swedish investment opportunity.

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