FX Strategy: Dividends, Seasonality And The SEK

The Swedish dividend season is typically concentrated from late March to May. It has become a popular explanation why EUR/SEK tends to rise during that period. When we look at the seasonal pattern, EUR/SEK has risen five of the last six years in April (see Chart 1). However, for the six years before that EUR/SEK fell every year during that period (see Chart 2). A similar pattern applies to May. Hence, over time the evidence that dividends have a persistent impact on the currency appears to be weak . Furthermore, for March, it has been a reversed pattern: SEK depreciation in the last six years and SEK appreciation in the six preceding years.

However, our experience is that sometimes the SEK is affected around dates when there are large dividend pay-outs. That makes sense, at least to the extent that foreigners actually repatriate their incomes. Some probably do, but our impression is that it is a common strategy to reinvest. Hence, we recommend keeping an eye on specific dates with potential huge foreign pay-outs, which, at least in principle, could generate SEK flows. Chart 3 on the next page displays the total amount of SEK selling (blue)/SEK buying (yellow) stemming from the companies on OMXS30 arranged by date under the assumption that the owner would repatriate to whole amount (SEK billions). Table 1 lists the individual companies with their respective total dividends, the Swedish ownership share and the computed amount of SEK selling/buying (source: Bloomberg).

However, another evident reason for the SEK depreciation in April has been re-current dovish April surprises by the Riksbank during the past couple of years. In particular, soft messages from the Riksbank were the trigger for SEK depreciation in 2013, 2014 and 2017 (see Chart 1). We think the SEK will come under pressure from the Riksbank also after this year's April meeting when it pushes rate hikes beyond 2018.

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