Globally, the stock market developed surprisingly positively last year, with one exception: Finland, which was among the worst in the world. The Helsinki Stock Exchange ended the year 6 percent down.
One reason was that companies that weigh heavily in the Helsinki Stock Exchange’s large-cap index, such as forestry companies and basic industries, have had difficult times. And Nokia, which is also heavily weighted in the index, has its own particular problems.
This year there is an opportunity for the Helsinki Stock Exchange to take revenge. That’s what the Bank of Åland’s equity strategist says Tanja Wennonen-Kärnä.
– Positive signals have come, among other things, from the forest companies. In the same way that some large companies depressed the Helsinki stock exchange last year, there are some large companies that can lift the stock exchange this year.
Sectors where Wennonen-Kärnä sees positive trends are cyclical, i.e. cyclically sensitive industries such as basic industry and engineering, as well as companies that sell to the consumer market. When inflation comes down, people’s real incomes increase, which is expected to increase demand.
Another category with potential this year is small companies. In recent years, these have been hit much harder by the interest rate increases than large companies, because small companies generally do not have access to financing options other than bank loans. This means that they are immediately affected by higher interest rates. Now they can instead benefit from lower borrowing costs.
The Bank of Åland’s equity strategist Tanja Wennonen-Kärnä.
High values in the USA
Globally speaking, Japan is the stock market that has performed best recently, while the development in the so-called emerging markets has been the worst. China a question mark, among other things as a result of the problems in the real estate market, deflation and a record low currency.
As for the companies’ profit growth, the analysts predict a clear rise in the US, but not as clear in Europe. According to Wennonen-Kärnä, the problem in the US is simply that the values are very strained. The so-called p/e ratio, which measures the share’s price in relation to earnings forecasts, is over 20 when the long-term average is 17.9.
– So even if the earnings growth of the American companies is good, the high valuations mean that the yield potential is limited when it comes to the USA.
According to Wennonen-Kärnä, how the American stock market develops this year depends to a large extent on the so-called magnificent sevencompanies, i.e. the technology giants Apple, Meta, Amazon, Alphabet (Google), Microsoft, Tesla and Nvidia. Their valuation levels are sky high, meaning they cannot afford any disappointments.
– In the Nordics and the rest of Europe, valuations are still lower. Therefore, we see greater potential in these markets.
– We do not expect a straight-line development, and the fluctuations have not disappeared, but we are positive about shares in 2024.
Overconfidence in lowered policy rates?
However, there is a clear risk of disappointment if the central banks do not lower policy rates at the pace and extent that the market expects. There has been great optimism here.
But historically, the market has been bad at predicting central banks’ decisions. That’s what the Bank of Åland’s head of interest rates says Jyri Suonpää.
– Regarding the increase cycle of recent years, the market has been wrong all along. The same applied to the downgrade cycle after the financial crisis.
Suonpää further points out that the time between the last rate hike and the first cut has been much longer in previous cut cycles than what the market now expects.