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Nordic equities – what can go wrong?

Stockholm city view at sunset

The outlook is bright. The earnings trend is much better than may have been feared after the upturn in interest rates in recent years and the dramatic decline in inflation for industrial input goods over the past 18 months. Meanwhile interest rates are now expected to fall significantly in 2024, which should further bolster earnings next year as well as valuations right now. At the same time, stocks are already generously priced, which provides limited scope for tolerating any downside surprises. The report period for the fourth quarter of 2023 has got off to a weak start, with downward forecast revisions as a result. We also see substantial political risks in 2024 – risks that may have an actual and significant impact on company earnings and thus a more sustained impact on the stock market than various events over the past 15 years, which have only caused temporary hiccups.

The report period has led to lower earnings forecasts

So far, company reports for Q4 2023 have not been impressive. The share of downside surprises is unusually large. During January, there have been nearly twice as many downward as upward revisions of 2024 and 2025 earnings forecasts. 

Among the upward earnings revisions, two industries are clear standouts – real estate companies and transport/shipping companies. Earnings forecasts for real estate companies are benefiting from lower interest expense forecasts. Earnings for shipping companies in 2024 are being revised upward due to attacks on ships in the Red Sea, which have disrupted transport through the Suez Canal. This, in turn, has driven up freight rates and capacity utilisation in maritime transport but has also caused more companies to switch to air cargo. 

Are political risks for real this time?

Given current valuations, it is hard to see investors factoring in any of the many potential political threats that exist. Hopefully, the world will avoid going off the rails, but the political risks appear to be unusually high, while investor preparedness for potential setbacks is low. For companies with a large exposure to the US market and a focus on climate change solutions, the US presidential election in November should be one of the most important issues. It is also worth noting that climate change solutions affect more than such sectors as renewable energy. In most industries, companies now highlight their low-carbon transition as a key driver and competitive factor – this holds for everything from transport to electrification to metals produced with an extra-low carbon footprint.

This is a summary – read the longer article on this topic on pages 13-16 of the latest Investment Outlook

Esbjörn Lundevall

Esbjörn Lundevall

Equity Analyst, Investments