This article is part of a regular series of thought leadership pieces from some of the more influential ETF strategists in the money management industry. Today’s article features Tyler Mordy, president and co-chief investment strategist of Toronto-based Hahn Investment Stewards.
Looking out over Stortorget, Stockholm’s oldest city square, I wondered if investors could learn anything from Sweden’s recent economic developments.
After all, the Nordic country is a small fry on the world scale, with a population of less than 10 million, gross domestic product of just $464 billion and some highly unique consumption patterns. Oddly, caviar squeezed from a tube is a staple of Swedish diets. Go figure.
Yet global lessons are available for intrepid minds. With its main policy rate set at -0.25 percent, Sweden has one of the world’s lowest lending rates. At that level, the Swedish central bank’s chariot wheels have not just hit the ground. they have gone through it and are burrowing deep into the monetary unknown.
Looking ahead, Sweden’s experience could provide important leading indicators for other countries descending below the zero bound. Strange things could happen once it’s crossed.
Of course, central bankers can be fickle friends. Like Scandinavia’s erratic weather, they can be hot one year and cold the next. It was only 2010 when Paul Krugman bitterly accused Sweden’s central bank of “sadomonetarism”—ruthlessly raising rates in the face of high unemployment and low inflation.
To cut to the chase, while pitfalls abound in this new world, building positions in the iShares MSCI Sweden ETF (EWD | A-96) might make sense these days. So let’s look at these unprecedented circumstances to better understand the opportunity and its dangers.
That is history. Now the business of central banking is far removed from the pedestrian world of mundane eighths and quarters. Rather, policymakers have decisively plunged into a vast, subterranean universe of negative interest rates, quantitative easing and other previously unthinkable policy measures.
Is a return to normal an option? Not likely. Notably, the ECB’s momentous monetary conversion as we wrote about last year here on ETF.com and, in particular, its foray into quantitative easing, sparked a wave of counter-responses across the European continent. Full-scale monetary war is on, with each central bank trying to outdo the effects of the other.
How far can this go? Rummaging through the monetary time capsule yields no useful comparisons. Yet comments from Sweden’s neighboring Nordic country, Denmark, highlights Europe’s new policy zeitgeist. Central Bank Chief Lars Rohde recently told Bloomberg News:
"There is no limit to how low rates can go and how large foreign currency reserves can grow… The message is that if it’s not enough, we will do even more… Either we can expand our balance sheet or we can go deeper into negative territory with the interest rates … We can go on forever."
A Reality Check
Forever? For investors with time horizons of less than eternity (read: all of us), matters are more urgent. Bluntly, what do these trends mean for our retirement portfolios?
All of which brings us back to the bustling square in Stockholm. With monetary policy ultra-accommodative, should investors initiate positions in Sweden’s stock market played through the iShares Sweden ETF (EWD | A-96)? Consider four reasons to initiate long positions: