Tax Plan Raises Fears of Isolation From European Mainstream : Swedish Bourse Turns 125, Looks Doubtfully Ahead

The Stockholm bourse turned 125 years old this month, but the anniversary celebrations were tinged with doubts about the future.

A flood of foreign buying--which pushed share prices to dizzying heights in the mid-1980s--has receded, threatening to leave the exchange isolated from Europe’s financial mainstream.

Stockholm’s slice of global business has fallen sharply since 1985, when foreigners were net buyers of 4.8 billion crowns ($750 million) worth of Swedish stocks. But in the first half of 1988, foreigners sold a net 1.6 billion crowns ($250 million) worth of shares.

Many foreign investors, wary after last year’s October crash, are now favoring their familiar home markets. But Swedish brokers fear that the Swedish market is suffering more than most.

The main concern now is a 2% turnover tax on equities trading, said investors, industrialists and bourse officials, who view the levy as a major threat to business.

The Social Democratic government has proposed extending the tax to brokers’ share transactions on their own accounts. At present the tax applies only to their deals on behalf of clients.

Can’t Stand Apart

Many see the new tax proposal as a government attempt to demonstrate its socialist credentials ahead of a general election in September. But Bourse Chairman Bengt Ryden says the tax could relegate the Stockholm market to a mere regional player.

“I think the government will have to change its mind on this one,” Ryden told Reuters. “We just cannot afford to stand apart from the rest of Europe.”

Foreign financial analysts believe the bourse still has its bright side. Several Swedish firms achieved record profits this year--boosting share values by 30 percent and helping Stockholm outperform many other markets. In addition, the upcoming computerized trading system will allow Stockholm to match the sophistication of other exchanges.

Ironically, Sweden’s socialist-inspired public investment funds, often criticized by industrialists, have also done much to underpin share prices this year, analysts said.

But the reverse side of the coin is a market dominated by such institutional investors. Ryden estimates that private investors now own only about 25% of the bourse value of 500 billion crowns ($78 billion).

“When share ownership gets so concentrated, the very basis for a well-functioning market is at risk,” Ryden said.

Of the 13 firms listed on the bourse at its founding in 1863, only Forsakrings AB Skandia, Sweden’s largest insurance company, remains among today’s 158 traded companies.

Outgrew the Market

“As an insurance company, the Stockholm market is much more important to us as investors than for raising equity, and in that respect it serves us very well,” said Skandia finance director Bjorn Hall.

Some leaders of Swedish industry have outgrown the market. For example, car and truck maker Volvo AB--which sought a bourse listing in 1935--has liquid assets alone of more than 22 billion crowns ($3.4 billion). Its current bourse value is only about 23 billion ($3.6 billion).

“For the dozen very big companies the Stockholm bourse is probably too small. Most have listings on foreign markets,” said Ragnar Boman, who sits on a government committee examining Swedish securities regulations.

Meanwhile, Sweden has other obstacles to foreign investment. Besides the taxes on trades, restrictions on foreign ownership of Swedish shares--which effectively prevent their taking over domestic firms--may hinder the attractiveness of such companies.

“There certainly are obstacles to foreign participation,” added Jenny Tora of London brokers James Capel, “but often they can be outweighed by the good returns.”