LONDON - Swedish stocks are expected to find further support in global economic data and a hesitantly stabilising banking sector in the coming weeks, as the EU and the IMF are anticipated to release the second tranche of a bailout package to Latvia, London-based analysts and traders said.

Following a 17 percent rebound during the first six months of the year, the OMXS-30 added another 2.9 percent since the beginning of June to June 12th, though trading remained relatively volatile as the benchmark index swung within a 65 point range during the first two weeks of the month on the back of continuing devaluation concerns in Latvia.

Banking stocks may well add more points to the benchmark index in coming weeks. Henrik Schmidt, banking analyst at Keefe, Bruyette & Woods in London expects shares in the sector to further rebound, but adds that the issues that currently haunt SEB and Swedbank in particular, remain in the long-run.

“I doubt that we are going to see a devaluation at this point in time because we are now in a situation where the (Latvian) government has approved further budget cuts”, said the analyst.

The second tranche of the bailout package by the European Union and the IMF is expected to be released shortly, which, analysts say, would reduce the risk of a spill-over effect from Latvia to other Baltic nations. In a note to clients, analyst Jan Wolter at Deutsche Bank echoes this, arguing that “the EU/IMF have very little to win and a lot to lose by holding back payments for budget reasons”.

The analyst currently has a “Sell” rating on shares in SEB and Swedbank and “Hold” ratings on Nordea and Handelsbanken. While devaluation is therefore unlikely in the short-run, the risk remains on the horizon: “Unfortunately, I don’t think it’s going to go away in the long-run, because it is difficult to take out the costs: to reduce wages and pensions and you name it. It’s difficult”, adds Schmidt.

While the latest data on industrial production showed that the sector continues to contract, Citigroup analyst Ann O’Kelly, in a recent note to clients, also highlights that “the pace of contraction in the country’s economy is abating”, although more hard data is needed “to confirm that the recession in Sweden is indeed receding”. Yet, global data may well support stocks in the short-term:

“It has to be said so far on balance, the data globally has been supportive of markets,” says Bernard McAlinden, investment strategist at NCB Stockbrokers in Dublin.

Although there is technically room for a correction, the strategist noted that traders are still holding on to their positions, chasing further gains, while warily eyeing the release of economic data.

“Of course, nobody knows whether there will be a 5 or 10 percent correction. That’s always a possibility”, the strategist says, adding however that “if you were to look into the medium term, I think you still need to hold”.