Recovery of Nordic economies boosts company profits

The recovery of the Nordic economies that began in the second half of 2023 and is accelerating since the beginning of 2024 can boost the profitability of the Nordic manager’s fixed income strategies Evlijust as it already did in 2023. The combination of the Nordic bias of these strategies and the differential quality of some of them, which have 5-star Morningstar ratings, suggests that they will also achieve very high returns in 2024, according to the experts at the manager

Nordic economies crisis

After recovering from COVID-19 in a similar way to risk markets around the world, the Nordic countries suffered from aggressive rate hikes by central banks coinciding with rising inflation, the Chinese economic slowdown and the war in Europe. As a result, Swedish and Finnish equity markets fell by 30% and high yield credit spreads widened by 300 to 400 basis points. The most leveraged sectors faced a severe crisis, especially the Swedish real estate sector, where investors had been using excessive leverage.

At that time, there was a flight of international capital from the Nordic area, currencies (SEK, NOK) weakened by 5% to 10% from already historically low levels, and prices adjusted. GDP growth stalled and even retreated in some cases. This was the situation of the Nordic economies at the beginning of 2023, but in the second half of the year the first symptoms of recovery arrived, which was consolidated at the end of last year.

Economic recovery

Since early 2024, the momentum of the Nordic economies is accelerating, supported above all by business recovery. The keys to this recovery are the following, according to the experts at the Nordic manager Evli:

• Economic indicators and capital market prices have changed their tone from bearish to bullish. An example is real estate bonds, which hit almost 18 months ago and have now regained the attention of investors.
• The weakness of the Swedish krona and the Norwegian krone are significantly improving the competitiveness of the export industry.
• Household incomes have stabilized thanks to the stabilization of interest rates (and their upcoming decline).
• Wage increases are boosting national purchasing power as inflation fades.
• Investor interest in riskier assets is growing and capital flows are turning positive after more than two years of caution. As this cycle has just begun, allocations to riskier asset classes are still low, and are expected to increase.
• The above factors are driving the profits and cash flows of Nordic companies. The moderate financial leverage and strength of the Nordic banking sector, especially the large banks, also contributes to this.