Nordic equity markets: positioning for a tough economic outlook

Pedestrians on the street in central Helsinki Finland
Reading time: 3 minutes

The Nordic economic outlook isn’t exactly rosy. Cue layoffs and downbeat growth expectations. Where to invest if you want a little more defense in your financial strategy?

Our bottom-line suggestion is to investigate discount retailers. Maybe Finland’s Tokmanni? If you’re really adventurous start your own company offering budget prices to deal-hungry consumers. Or are you more of a shark? Hold your cash, wait for equity prices to drop, then spend, spend, spend. 

How long will the party go on? 

Since the great recession in 2008-2009, we have witnessed a 10-year “bull run” in stock markets, especially in the United States. Other countries have witnessed similar results. Never before in the history of stock investing have we seen such a long period without a recession. Only one other bull market has lasted longer than seven straight years, and it was the bull run after WW2

(In this article, we are taking a look into the current economic situation and thinking about future decisions when it comes to retail investing.) 

So how long will the party continue? 

This is the million dollar question that no one really knows. Looking at the current equity prices (such as OMX Nordic 40 or the S&P 500), it can be tempting for individual investors to sell at least some of their shares, taking profits while they’re still there. However, by not holding  investments, or selling too early, investors can also lose some big gains that might just come to their portfolios. There is always risks and rewards, and everyone acts according to their own investing strategy.

In the past 10 years, US stocks have performed better than Nordic European stocks.

Economic growth is likely going to slow down

We have witnessed steady economic growth globally in the 2010s. Finland struggled quite badly after the great recession and the following European debt crisis. However, since 2015 the Finnish economy has recovered. According to Statistics Finland, Finnish Gross Domestic Product (GDP) has grown for four consecutive years, although the growth is expected to slow.

The Bank of Finland Forecast for Finnish GDP Growth:

  • 2019: 1.6%
  • 2020: 1.5%
  • 2021: 1.3%

It is always hard to predict the future, especially when there are so many uncertainties and factors that determine the global economy trend. As a small fish in the sea, the Finnish economy is prone to various global economic threats and risks. Finns have always relied on their export sectors which is also the reason why the Finnish economy goes hand in hand, up or down, with the global economy.

So want to know how the Finnish economy is going to do? Look at global economic outlook.

Whats should intelligent investors do?

Many of us are thinking ‘what should we do in this new situation’: equity prices are at all-time highs, everyone is talking about the next recession, but still there are not too many attractive investment options for stocks and real estate.

How can intelligent investors invest their money and equities in this kind of a situation?

It all comes down to personal preferences, investing strategy, risk-tolerance, life situation etc. Some things that every investor should consider…

Are you investing long-term or do you need the money in a few years ?

  • The sooner you need your money, the more risk you have if you invest in stocks. Stock market in general have always been a good option for long-term holders, but only those with enough time.

What kind of stocks do you have in your portfolio?

  • During tough economic times, investors should look for companies that thrive or at least survive recessions better than other companies. For example, discount retailers such as Wal-Mart or Tokmanni in Finland might be good options if a recession hits.

Should you allocate your investments into other asset classes?

  • To reduce risk in an investment portfolio, one should invest in different asset classes. Investing in precious metals, such as gold, or just having cash, might be a good option if stock prices drop. Gold price and stock prices have no or very weak correlation which is good for asset allocation. Building up a cash buffer might be a good idea during these times, because when the recession hits, equities are on sale!

Joonas Saloranta covers Northern Europe investing, macroeconomics and more at the Financial Nordic blog.

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