SCFI – Månadskommentar september 2022

SCFI - Monthly Commentary September 2022

Scandinavian Credit Fund I AB (publ) reports a NAV rate for September of 104.64. That's up 0.50 %. We are still clocking at a level above 6 %, in this messy and uncertain world this is very good.

New subscriptions in September were just over SEK 20 million, many thanks for that.

We have had no new lending in the fund during the month of September. However, a number of smaller increases have been made on already granted credits of around SEK 40 million.

During the month, we have reviewed all credits with specific exposure to increased prices, increased electricity prices and declining demand due to macroeconomic developments. In some cases we have adjusted the reservations, see further below. We believe that the portfolio is well explained and we have continuous contact with the portfolio companies. This is of utmost importance so we can act if the situation worsens.

The market and the economy

During September, the stock market continued to fall, the Swedish krona weakened further and long and short interest rates continued to rise. In 10 years, the krona has lost 67 % against the dollar and 28 % against the euro. This, among other things, is a consequence of the Riksbank's easy monetary policy. Furthermore, since 2021, the Riksbank has diluted the krone's fall by selling kroner against foreign currency with the aim of strengthening the foreign exchange reserve. Last year, SEK 120 billion was sold, and so far this year the bank has sold SEK 100 billion.

Central banks continue to raise interest rates aggressively as inflation remains high or rises. The difference between long and short interest rates is starting to become negative, which means that the market is starting to discount a future slowdown. The commodity market has continued to decline, which strengthens the picture of declining demand.

The high inflation is hitting the outside world and the Swedish economy hard. High inflation and rising mortgage interest rates are eroding households' purchasing power, and households have a gloomy view of the future. Households are assumed to receive some compensation from the state for the high electricity prices, but they will still reduce consumption in the future. To some extent because it is still unclear how the support will be designed and how big it will be and when in time it will be paid out. At the same time, the declining global economy is hitting the Swedish export industry. The latest barometer indicator from the Institute of Economic Research continues to fall sharply on all fronts. The worst is the case with households, where we have never seen such low levels of the indicator. However, most analysts see that inflation will settle down and back down within a twelve-month period and that key interest rates will peak between 3 and 5 %.

Since the dollar is the only reserve currency, capital flows to the dollar during these uncertain times. This creates volatility and stress in the financial system but also in the real economy.

Risk appetite has eroded sharply in recent months, which has been manifested in, among other things, higher credit spreads, higher interest rates on index bonds and higher spreads between housing bonds and government securities. This is worrying and to quote Bank of America, credit spreads have risen to a "borderline critical zone". Investors are looking for a safe haven for their investments, they are fighting against reduced portfolio values at the same time as inflation reduces the value of money.

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