Financial analysts suggest that Finland’s struggling stock market may present an attractive proposition for investors in the coming year, with the potential for a global economic rebound set to benefit the cyclical stocks dominating the national index. Moreover, the alleviation of perceived Russia-related risks following Finland’s NATO membership is seen as a positive development.
Finnish stocks have been the worst performers in Europe this year, grappling with risks stemming from geopolitical tensions with Russia and uncertainties surrounding China’s economic recovery. Additionally, large funds have favored global mega-cap stocks over smaller enterprises, a significant component of Finland’s equity landscape.
The combined value of the top 25 stocks in Helsinki is $150 billion, with Europe’s most valuable firm, Novo Nordisk (NYSE:NVO), alone worth three times that amount. The OMX Helsinki 25 has incurred a 10% loss this year, in stark contrast to the STOXX 600’s 8% gain.
Tomas Hildebrandt, Senior Portfolio Manager at Nordic fund manager EVLI, views Finnish stocks as attractively priced and anticipates potential benefits from an economic recovery gaining traction in 2024. He notes that despite concerns about a global downturn, there are no current structural issues that would lead to a deeper recession. Hildebrandt expresses an overweight position in Finland while maintaining an underweight stance on Europe as a whole.
INDUSTRIAL CHALLENGES
Industrial stocks in Finland have suffered due to a global manufacturing downturn since 2022. However, recent indicators, such as the rise in South Korean semiconductor exports in October, suggest an upward trend. A recovery would likely favor other export-driven European markets, with Finnish equities potentially representing a bargain due to their harsh derating linked to China exposure and concerns about tensions with Russia.
Finland’s NATO membership in April has contributed to a decline in country risk, according to Hertta Alava, Senior Strategist at Nordea, the country’s top bank. Some foreign investors had previously divested from Finnish stocks amid concerns about Russia’s proximity following the Ukraine war.
Key players like elevator maker Kone, Helsinki’s largest industrial stock, divested its Russian assets in October after facing challenges due to significant exposure to China’s property sector. Despite a 14% slide in its stock price this year, Kone is now trading at a 10% discount compared to its rivals, Zurich-listed Schindler and U.S.-based Otis.
UNDERVALUED INDUSTRIALS
Finnish industrial stocks have historically commanded an average premium of 28% over European peers, but this gap has narrowed to a 14-year low of 6%, according to data from LSEG. Alava suggests that this group has the potential to outperform Swedish and French industrials over the next two years, with the broader Finnish market showing stronger earnings upside.
LSEG data indicates that OMX Helsinki 25 earnings are projected to grow by 12% in 2024, outpacing the 6.7% rise expected for the STOXX, after respective declines of 16% and 1.2% in the current year.
“Finnish stocks are attractively valued, and a lot of bad news is priced in,” says Alava. “If the European economy recovers in 2024 as I expect, Finnish cyclical stocks should recover too… this could be a good time for long-term investors to increase holdings.”