(Bloomberg) — Sweden’s not only one of the best-performing equity markets in Europe this year. It’s also become the country that offers investors the most choice when it comes to picking stocks.
Sweden — with a population of 10.2 million people — now has almost 1,000 listed companies, according to data compiled by Bloomberg. That’s the most in the European Union, outstripping much bigger countries such as Germany and France. More than 80% of them are small caps, with market values of less than $1 billion.
The list is getting longer, with initial public offerings in the works from caller-ID app Truecaller and investment firm Storskogen Group AB, even as some investors start to question whether the market is in a bubble. Sweden is heading for its busiest year for IPOs in more than two decades.
The vibrant market for smaller companies reflects the Nordic nation’s thriving startup scene, less-cumbersome regulation and deep investor base, according to Jonas Strom, the Stockholm-based chief executive of investment bank ABG Sundal Collier.
Sweden has a “unique eco-system of investors,” Strom said in an interview. “Here there are many smaller professional investors that don’t need a 100-billion-euro transaction but are happy with 50 million euros.”
International bankers are looking to profit from the capital formation by challenging the domestic dominance of Carnegie and ABG Sundal Collier. The head of BNP Paribas SA’s Nordic business said in May he was adding staff in the region, while JPMorgan Chase & Co. moved its Nordic investment banking team to Stockholm from London.
Still, like many smaller markets, Sweden has seen some of its most promising startups look abroad. Music streaming company Spotify Technology SA and oat-milk maker Oatly AB both listed in the U.S. in recent years. Bankers will be watching to see if the next wave of unicorns, including $46 billion lender Klarna Bank AB and payments firm Trustly, do the same.
Read More: Spotify’s Nest Proves a Fertile Breeding Ground for Unicorns
Plenty of other businesses are content to stick close to home. So far this year, 83 companies have gone public in Stockholm, raising $6.4 billion.
Sweden has “a lot of entrepreneurs that are willing to take risks and bet on new ways of doing things,” said Caroline Forsberg, a 25-year veteran of the country’s equity markets at SEB Investment Management AB.
That robust activity, and the surge in stock prices, is causing concern the market is overheating. Even before this year’s rally, a favorite valuation indicator of Warren Buffett — market value as a percentage of gross domestic product — showed that Sweden was far more expensive than other Nordic markets and the U.S.
Since then, the large-stock OMX Stockholm 30 Index has surged by 25% and a broader market gauge is up by 28%. The chief executive officer of investment firm Bure Equity AB said last month the market’s rally raises “questions over whether the stock market has become excessively overvalued.”
Stock markets for small- and medium-sized growth companies “are running out of fuel after an hysterical year,” said Joakim Bornold, an adviser at Soderberg & Partners.
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