Nordic equities: A focus on tariffs
Companies are taking a wait-and-see approach but are not afraid
In the latest round of quarterly reports, there was a great focus on tariffs and the trade war. Even companies that have no direct exposure at all to trade flows between the US and the rest of the world often took time to describe how they are exposed to various indirect effects. Few or no companies can do business in an environment where new tariffs are implemented with lightning speed and planned tariff levels may fluctuate 25 percentage points up and down again within a 24-hour period. Neither sellers nor buyers are especially keen on making deals where factors beyond their control can change the price by far more than the profit margin companies make on these deals.
The Q1 report period as a whole was mixed. There is much uncertainty but no great concern among listed companies generally. In brief, the performance of cyclical companies has undoubtedly been better than was apparently feared around April 10 this year but far worse than we had hoped in early February. One sector that was clearly a negative standout during the reporting period is once again consumer goods companies. Producers of everything from white goods to passenger cars to garden and leisure goods continue to be squeezed by weak demand. That downturn continues from an already a low level, and many of these companies also have an especially heavy exposure to new tariffs.
On the plus side, banks, telecom operators and insurance companies delivered better reports than expected.
Lowered earnings forecasts
Earnings forecasts have been revised downward significantly over the past three months, mainly for Sweden but also for the Nordics generally. Only three months ago, earnings growth of more than 6 per cent was expected in the Nordic region and more than 8 per cent in Sweden. Now we foresee marginally positive growth in the Nordics and nearly a 2 per cent fall in Swedish earnings.
Initially, it was primarily the stronger Swedish krona that led to lower earnings forecasts. The deterioration in economic conditions and to some extent fears about the impact of tariffs along with other factors subsequently have also contributed to revised forecasts.
Unfortunately, the deterioration in economic conditions cannot be blamed solely on the US. The expected recovery in Sweden and the other Nordics, driven by interest rate cuts, tax cuts and pent-up consumer needs as well as investments in housing, has not yet picked up speed. Consumer confidence in Sweden has fallen sharply since November 2024. Half of the upturn from the historic low set in autumn 2022 has been erased, and confidence is now lower than in spring 2020, when the COVID pandemic hit.
Nordic stock markets divided
The brutal downturn for the biggest Nordic company, Novo Nordisk, dominates the performance of Nordic stock markets as a whole and the Copenhagen stock market in particular. From its peak less than a year ago, the pharmaceutical giant’s share price has plummeted by more than 60 per cent. Despite the downturn, the company has a nearly 40 per cent weight in the Copenhagen stock exchange’s overall index and about a 14 per cent weight in the Nordic index. Novo Nordisk’s market valuation is still nearly 40 per cent higher than that of the second biggest listed Nordic company, AstraZeneca, and more than three times higher than the third biggest Nordic company, Swedish-based Investor.
If we focus instead on Sweden, performance has been more varied. The year began with a swift upturn in share prices, and our forecast of a 10 per cent upturn in 2025 was met as early as mid-February. Sweden’s large-cap OMXS30 index was valued then at a 12 per cent premium to its 10-year average. After Trump unveiled his so-called reciprocal tariffs in early April, panic hit the stock market. US gauges of market fear such as the VIX volatility index surged to their highest level since the COVID pandemic broke out in 2020. Based on this metric, over the past 20 years market fear was only higher in the spring of 2020 and during the financial crisis of 2008-09. If we look instead at the equivalent European-wide index, market fear after the Russian invasion of Ukraine in 2022 was also comparable.
The panic has now eased but may return if new political missteps are made, either in the US or in response to American whims. Economic conditions have deteriorated, but analysts are already trying to incorporate that in their forecasts. The Nordic index is valued 11 per cent below its historical average and is at its lowest level since autumn 2022, when there was great concern that the central banks’ battle against inflation would lead to a global recession. Nordic small caps are still also attractively priced. The risk/reward ratio appears to be less advantageous for Swedish large caps, which are trading at a small premium to their historical average.
Banks have done well, outperforming the stock market this year. That trend may very well continue but is threatened by the risk of faster key interest rate cuts. Real estate companies benefit from lower interest rates yet have been one of this year’s losers on the Stockholm stock exchange. There should be room here for upward valuations of companies that can handle the increased vacancy risk. The Nordic stock markets are attractively valued, and we see good recovery potential. But there is considerable uncertainty, which will be greatly affected by political developments.
