The Swedish Riksbank’s reduction of the key interest rate to 3.25% can mean great opportunities for small companies on the Stockholm Stock Exchange.
Nikola Kalanoski on ABG Private Banking predicts that these companies will benefit from cheaper financing and strengthened risk appetite in the market.
He points out that the small companies have already performed better than the larger companies this year and that lower interest rates create favourable conditions for continued growth.
At the same time, other economists point out that interest rate cuts can happen faster than the Riksbank’s indicated path.
“The interest rate must fall faster” wrote Claes Hemberg, for example, recently on his blog and points out that an interest rate as low as 1.5% could be reached as early as the summer of 2025.
This would, of course, create an even more favourable climate for small businesses to grow – especially at a time when increased investment and consumption can drive their bottom line.
The bond market is strengthened
The falling interest rates are also expected to strengthen the bond market.
As interest rates fall, older, higher-yielding bonds become more attractive, and investors can see increased values in these assets.
ABG highlights that the bond market offers interesting opportunities going forward, especially given the global trend of stimulus.
China’s extensive interest rate cuts are an example of how other markets are affected, which in turn can give the Swedish economy additional support.
Small companies in the center
With small companies at the center, we see a development where these companies not only benefit from lower financing costs but also from increased demand in the market.
The global interest rate environment and the reductions create a particularly favourable situation for small businesses, which are generally more sensitive to interest rates.
This applies not only to Swedish markets but also internationally, where small companies tend to overperform in environments with reduced interest rates.
Nikola Kalanoski emphasizes that small businesses are often at the forefront of quickly adapting to new economic conditions, and with the current climate, these companies can accelerate their growth.
With a valuation premium of 21% and growing optimism in the market, there are high expectations for continued outperformance.
Lower interest rates lower financing costs for these companies, creating better conditions for expansion, innovation and profitability.
Increased risk appetite among investors
The interest rate cuts also lead to increased risk appetite among investors, which is positive for both small companies and the bond market.
Investors are now looking for assets that can deliver higher returns, and with improved conditions for both small businesses and bonds, an attractive investment environment is being created.
Investors are already positioning themselves for the upcoming reductions and there is a clear interest in small companies that can quickly benefit from the new conditions.
With these economic changes, small businesses are expected to continue to perform well and take a central role in the economic recovery.
The bond market, with its stable yield potential, also provides investors with an opportunity to diversify their portfolios and secure appreciation in a falling interest rate environment.
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