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Vaccines, stimulus and climate policy will dominate 2021

Image of Slussen in Stockholm covered in snow.

We anticipate robust earnings growth in 2021, with contributions expected from every major sector. That means companies have a lot to live up to, but if forecasts prove correct this will further fuel the upturn. However, valuations on the Stockholm stock exchange are already at a 20-year high. This is due to unprecedented monetary stimulus measures, which are expected to provide continued support, but we should expect volatility this year as well.

This is a summary – read a longer article on pages 12-16 of the latest Investment Outlook (pdf)

Exceptional earnings growth is expected

The economic recovery after the 2020 coronavirus crisis is expected to lead to exceptionally good earnings growth this year. This is thanks to already large stimulus measures, but also increased economic activity during the second half of 2021, while most listed companies have used the crisis to carry out extensive cost cutting. Altogether, this is expected to boost pre-tax earnings of Nordic listed companies by 58 per cent in 2021.

"Earnings of Nordic listed companies will surge by 58 per cent in 2021"

High earnings growth is important to enable companies to catch up with what are already historically elevated valuations. High expected earnings growth is positive and probably one factor contributing to the stock market rally over the past six months, but it also implies a greater risk of disappointments.

Different risks for different sectors

For hard-pressed retailers and other consumer-oriented businesses, a rapid and successful vaccination campaign is absolutely critical, enabling a return to more normal consumption patterns in physical shops, hotels and restaurants.

For many industrials, sustained strong economic growth in China is more essential. An economic slump in China would have a very negative impact on this important stock market sector.

The same is true of the commodity sector, where surging prices for everything from base metals to steel, paper pulp, wood products, synthetic fertilisers, electricity and oil are favourable for the stock market as a whole and vital to the near-doubling of earnings we expect. Meanwhile we are seeing a number of manufacturers of consumer goods with a high commodity content whose share prices have been squeezed lately. In relative terms, they would probably become stock market winners if commodity price inflation slowed.

We have already seen a clear rotation into cyclical equities, so far mainly from defensive equities. This is a natural development when earnings growth is expected to accelerate. A far bigger question is whether we may also see a rotation during 2021 away from so-called growth equities. One catalyst for this could indeed be economic growth that is strong enough to generate speculation about monetary policy normalisation, and thus a significant rise in long-term market yields. We do not rule this out and believe in that case it may contribute to significant stock market volatility, both in the Nordic countries and elsewhere.

Economic growth more important than the Swedish krona

The krona often weakens when industrial production falls, easing the negative impact on Swedish industrial companies, but they will instead have to pay a price for this when the economy strengthens again, in the form of a stronger krona. However, a change in economic growth almost always has a predominant effect, whereas an exchange rate movement in the opposite direction has only a modest offsetting effect. We expect industrials in the Nordic region, where Sweden has the greatest weight, to deliver pre-tax earnings growth of 35 per cent in 2021, despite currency-related headwinds.

"35 per cent earnings growth for Nordic industrials in 2021"

We expect equities to remain pricy

There is still a long way to the staggering multiples that prevailed before the millennium (dotcom) bubble burst 20 years ago, but since then valuations on the Stockholm stock exchange have never been higher than today (based on equity capital valuations).

These high valuations also coincide with earnings that plunged to their lowest level since 2015. Both the Swedish and the Nordic stock market are valued at a staggering PE ratio of 28, based on our forecast for 2020. However, provided our forecasts prove correct, the PE ratio should fall to a more normal 19 for 2022 in both the Nordic region and Sweden.

There is a strong correlation between valuations climbing to historically high levels and the unprecedented monetary expansion we have seen over the past decade, especially in 2020. More money looking for returns plus ultra-low bond yields is a common recipe for higher share prices. After their multiple attempts to scale back monetary stimulus over the past eight years, we are meanwhile convinced that central banks will not withdraw stimulus too soon this time around. We expect continued high stock market valuations, viewed in a historical perspective.

A bubble, or just exceptionally good prospects?

After share prices surged for many environmental technology companies, many warnings have been sounded in the media about a bubble in “green equities”. News stories about the need for a faster transition to a more sustainable society, along with hopes of a radical transformation of US environmental policy, have provided support.

Green equities − for example in companies focusing on renewable energy, electric cars, battery technologies and hydrogen gas – have been among stock market winners over the past year. Valuations are usually high using traditional measurement criteria, which will probably contribute to more volatility going forward.

Of course there may be bubbles for individual equities and in some particularly hot niches. That is not unique to the green tech sector but extends to the stock market more broadly. So in our view, it does not necessarily mean that we have a bubble in green equities. Lofty valuations may be fully justified for companies that are vital in the current transition to renewable energy and to a more sustainable society, provided that they have a large technological lead and/or unique solutions plus good potential for future profitability.

A transition that may take several decades

Electricity accounts for only about one fourth of total primary energy use in the world today. Outside the OECD countries, where about 60 per cent of energy consumption takes place, this transition appears to be lagging behind in some respects. We are only in an early phase of a transition that will take several decades.

There are enormous business opportunities for companies that make the right investments in this phase. Some companies have already undergone an extensive transition. For example, Finnish-based Neste still has traditional oil refining operations, but the earnings it generates today are almost exclusively from renewable fuels: primarily renewable vehicle fuel but also jet fuel and chemicals. The company’s transition from oil to renewable fuels is vital to the some 1,800 per cent return its shares have generated over the past ten years.

Another example is Ørsted, which has transformed itself from a Danish-based producer of oil and natural gas into a world-leading project developer in offshore wind power. Although the company had already come a long way in its transformation when it was re-launched on the Copenhagen stock exchange in 2016, since then its shares have generated a return of more than 400 per cent while net earnings increased tenfold between 2015 and 2020.

We see a number of established listed companies in the Nordic region that have not yet progressed especially far with similar transformations, but they have the basic conditions, which gives us hope. There are now also numerous smaller listed environmental technology companies in the Nordic countries with promising and exciting solutions. Some of these may very well become new major corporations, even within the next five years, while even more may do so over the next decade.


  • We expect very strong earnings growth in Nordic equities
  • Vaccines, stimulus measures and climate policy will dominate 2021
  • Valuations on the Stockholm stock exchange are the highest in 20 years
  • Monetary policy will provide continued support, but count on volatility this year as well
  • The rally in green equities is not necessarily a bubble
  • High valuation multiples for companies with promising solutions and market positions are justified and reasonable
  • We are still only at the beginning of a societal transformation that will take several decades
Image of Esbjörn Lundevall, equity analyst at SEB.

Esbjörn Lundevall

Equity Analyst
Investment Strategy

Read more

You are welcome to read more in the “Nordic equities” section on pages 11-15 of the latest

Investment Outlook (pdf) 
Summary (pdf) 


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