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OMX Peaks During the Government Crisis

On the 28th of June 2021, the Swedish prime minister Stefan Lövfen announced his resignation after the left party together with the conservative block filed a motion of censure and won. The media, and even the prime minister himself, reiterated that this would spark a government crisis with potential consequences for the Swedish citizens. However, during this alleged government crisis, the OMX Stockholm stock index has continued to grow without any sign of slowing down.

OMX Peaks During the Government Crisisfoto: Maxim Hopman
Sebastian Shaqiri
created at: Wed Jul 14 2021| updated at:Fri Sep 24 2021
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On the 28th of June 2021, the Swedish prime minister Stefan Lövfen announced his resignation after the left party together with the conservative block filed a motion of censure and won. The media, and even the prime minister himself, reiterated that this would spark a government crisis with potential consequences for Swedish citizens. However, during this alleged government crisis, the OMX Stockholm stock index has continued to grow without any sign of slowing down.

The Swedish stock market has seemingly been unaffected by the government crisis, reaching an all-time high on the 5th of July after a short drawback in the middle of June. The initial negative reaction of the stock market with two red days (17th and 18th of June) occurred simultaneously as the prime minister lost the confidence vote in the Riksdag. Since then the stock market has risen around 4 percent which indicates continued strong growth from the Covid-19 contraction in February and march of 2020. The SEK exchange rate did depreciate around the date of the confidence vote suggesting some uncertainty in the market, however, days after the confidence vote the exchange rate appreciated back to levels similar before the vote.

These corrections across markets are most likely due to some government uncertainty, but nonetheless, the market reaction is still shining with its absence. This is most likely due to Sweden’s robust policy on the outlook for the government budget and how to structure the government debt, which will stay consistent, independent of the political parties ruling the country. Moreover, the strong public finances and low government debt, which most parties are in line with, signals strength and long-run certainty for investors. The long-run growth trajectories are most likely not affected by a potential government change either, and with low interest rates and stimulus from the central bank, the lack of reaction and significant continued growth in the stock market signals that investors put strong faith in the Swedish stock market. 

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