In a lending landscape that is still dominated by a few large Swedish pension funds, lenders are starting to become more cost aware and demanding, according to experts in the industry.
Following a notable dip in activity during 2012, Sweden’s trading volumes saw a marked resurgence during 2013 and Q1 2014. This was, in part, thanks to the Nordic markets being perceived by many as safe havens in uncertain EU conditions.
Within this environment, the big players continue to do well—and the emergence of new or competing lenders remains uncommon.
David Raccat, head of global markets, market and financing services at BNP Paribas Securities Services, says: “It is a very concentrated market because there are not a lot of securities currently trading.”
“As a result, when you trade in Sweden, you usually trade only a couple of names. Apart from those names there is not a lot available, particularly in terms of dispersion.”
Raccat goes on to explain that the Swedish securities market is just as concentrated in terms of lenders, with a handful of core, sovereign-like entities taking a large proportion of what is available in the country.
While it is undeniably a condensed industry, Sweden’s securities market is also a relatively nuanced one—with niche areas of lending more available to clients than ever.
UIf Noren, global head of sub-custody at SEB, comments: “In areas like autoborrowing we see that clients are having more control. Large transactions in large caps are getting fewer and fewer, while the interest in mid, and especially small caps, are sharply increasing.”
“In a market where corporate finance activity is coming back, we also see that corporate action-driven activity often generates a higher demand than supply, and this results in a more favourable climate for us. “
According to Noren, the only limitation to Nordic markets concerns Danish bank shares. This is due to the concentration of trading generating a loan driven demand and an increase in revenue generation opportunities. For Sweden, this has included a noticeable increase in hedge fund activity.
Sweden’s hottest stocks
Although Sweden’s market ebbs and flows like any other, a number of key stocks are currently at the forefront of trading activity, according to Karl Loomes, market analyst at Sungard Astec Analytics.
The main news driver of interest in SSAB at present is the upcoming share exchange deal with Rautaruukki, although ongoing concerns in the commodity markets (namely steel prices) and the widening loss reported in its Q4 analysis in February have also been underlying much of the action in the cash market, says Loomes.
SunGard’s data hints that short sellers have been taking a more optimistic view of SSAB during 2014. Although borrowing volumes climbed rapidly in January as the share price rocketed, suggesting short sellers were quick to bet against the gains, as the stock price pulled-back in the following weeks, borrowing volumes also slid—falling almost 40 percent from its peak by mid-February alone.
Loomes states: “As the shares began their latest climb, borrowing activity held fairly neutral. As news and terms of the Rautaruukki deal have been more prevalent, borrowing (and so likely short selling) has dropped off again rapidly—with trading volumes falling an additional 30 percent.”
Recently named by SunGard as the fifth ‘hottest’ stock for the Europe, Middle East and Africa region, Scandinavian Airlines Systems (SAS) has generated interest as it expects sales revenue to decline because of competition, despite it carrying 2.2 million passengers in March—an increase of almost 8 percent compared to 2013.
In February, a share issuance also generated some news flow, and seems to have triggered a downward slide in the shares, says Loomes
“From a borrowing perspective, the trend has been much clearer—our data suggests short sellers have been consistently building positions on SAS. Since 1 January 2014 the number of SAS shares being borrowed, the prerequisite to short sell then, has more than doubled, and now stands at its highest point since the summer of 2011.”
“This increasing borrowing activity does not yet seem to have been matched by new availability being made available from beneficial owners, and so utilisation levels and the cost of borrowing the stock have been on the climb.”
“Both of these metrics are currently the highest of any Swedish stock (utilisation is near 90 percent).”
The main news driver of interest in Atlas in 2014 has been its acquisition of UK-based Edwards Group, as well as some mixed earnings numbers earlier in the year.
Its stock climbed 10 percent between 25 March and 8 April 2014, although the last few sessions have seen some of this retraced.
Loomes comments: “On the borrowing front, the data would suggest short sellers are not as optimistic. The number of Atlas shares being borrowed has been climbing steadily since the start of February, following the company’s earnings numbers.”
“In this time the level has climbed 25 percent to more than 80 million shares, and most of these gains came amid the latest surge in its share price, which is a signal we often observe when short sellers feel the stock is overbought.”
“Of course if short sellers are mistaken, these are quite significant levels we are talking about—offering a potential short squeeze if upcoming news triggers a fundamental shift in opinion.”