Monthly Comment – March 2025
2025 began with optimism – falling inflation, interest rate cuts, and a forecasted economic upswing contributed to a strong start. However, the situation shifted during February and March. Signs of a weakening economy combined with rising inflation have instead increased the risk of stagflation. This, along with Trump’s many statements, unpredictability, and tariffs, has made it difficult for financial markets to assess and price risk. The uncertainty has led to large market swings as investors flee to safer assets. During the month, the entire gain of the Stockholm stock exchange was erased, and the global index fell by nearly 11% in SEK terms. The Swedish krona strengthened by around 7% against the USD in March and more than 10% during 2025. Germany launched a major stimulus package of €500 billion during the month, expected to boost growth but potentially push interest rates higher. In Sweden, the government announced significant investments in defense, financed through increased borrowing. The ECB cut its key interest rate to 2.50%, while both the Fed and the Riksbank left their rates unchanged. From K&S’s perspective, we remain cautious about making any major portfolio changes at this stage. As always, we continue to evaluate our strategy and assess how our holdings are affected by the current environment. However, we do not believe that exiting the market is the right approach. Trump is a negotiator, and the situation could shift dramatically overnight. The recent declines in sectors such as tech and AI are, in our view, more of a buying opportunity. Many of these companies are still growing at a rapid pace, are highly profitable, and are only at the beginning of their journeys – all while valuations have come down significantly.