Monday, July 4

Nordic managed boutique Evli, foresees positive global growth and with two speeds in 2022

Global macro vision

According to Evli, the global economic recovery and normalization after the Covid 19 pandemic continues. However, next year is going to be difficult: the first half will be a continuation of the momentum that the economy is experiencing at the end of this year, so extremely fast economic growth is expected, with enough inflationary pressures.

In the second half of 2022, a slowdown in economic growth rates towards the long-term trend is likely, and the gradual dissipation of inflationary pressure that is affecting the world economy at the present time.

Employment is growing as the service sector returns to pre-pandemic levels. Investments in industries are increasing to meet demand, adopt new technologies and deal with climate change. Central banks reduce their stimulus measures in an orderly and moderate manner as inflation expectations cool. Price pressures are easing as global supply recovers. and the competition intensifies.

It is an environment in which economic growth and the dynamism of economic activity improve the state of public finances, curbing new loan needs and reducing the debt / GDP ratio.

Nordic macro vision

On the Nordic side, the Nordic countries – Sweden, Finland, Norway, Iceland, and Denmark – have performed very well despite Covid-19. The reason is that the Nordic economy suffered a much smaller decline in terms of economic activity than the rest of the world and Europe. Therefore, the rebound in these economies has not been as pronounced, since the economy did not fall as much as other areas. Furthermore, the percentage of vaccination among the population of the Nordic countries is higher than that of most OECD economies.

Therefore, there is a lower risk in terms of economic decline if there is a return of the measures to alleviate Covid-19, whether it is due to altered virus strains or mutations. Strong growth is also taking place in almost all the Nordic economies, notably Norway. Sweden is growing rapidly, and Finland is also recovering quite well.

Risk scenarios

Nordic management boutique Evli sees two main risks that could affect the expected evolution of the economy:

• China: Confidence in the Chinese economy falters as its economic outlook deteriorates due to credit losses in the real estate and banking sectors. The central government is hesitant to remedy the situation and mitigate the damage. The country retreats further into its shell, and is faced with a growing confrontation with the West. Trade relations are tense and foreign trade falls sharply. Negotiations come to a standstill. Currency markets are reacting to the shifting equilibrium and the pressures are also reflected in western equity and bond markets.

• Covid-19: A new wave of Covid-19 causes a collapse in healthcare capacity and a new sharp increase in deaths, forcing governments to impose new restrictions on mobility and activity. Countries no longer have the capacity to support struggling industries and businesses, setting off a wave of bankruptcies and unemployment.


Nordic equities:

Strong increase in IPOs Regarding the outlook for equities in the Nordic countries, the most relevant is the increasing number of IPOs, especially in Finland and Sweden. The factor causing the IPOs is excess liquidity and the resulting high multiples for new companies listed on the stock market, at least during the last two years. Furthermore, the high number of OPVs is due to other structural factors, especially in Sweden.

This country has a unique ecosystem in which, in addition to the large traditional institutional investors, there are smaller professional investors who provide capital and liquidity to these young companies with growth aspirations. According to Bloomberg, Stockholm, the capital of Sweden, has generated more unicorns per capita than any other region in the world except Silicon Valley. Thus, the environment is conducive to IPOs in Sweden and especially in the segment of small and mid-cap companies when it comes to listed shares.

In 2022, IPOs will continue, both in Finland and Sweden, although it is convenient for the investor to be attentive to the quality and valuation of the IPO candidate companies. Nordic fixed income: A positive year for the Nordic corporate bond market The year 2021 has so far been very favorable for the Nordic corporate bond market, and investor demand for this type of asset has grown, while yields have remained stable.

Secondary market demand is very high, which has made it difficult to buy bonds, while primary activity has been slightly below expectations. Structurally, the demand for new bonds has been much greater than the supply in the market, a factor that favors both the secondary market and the performance of corporate bond portfolios.

For their part, Nordic bond issuing companies have strengthened their balance sheets since the beginning of the Covid-19 crisis. The crisis caused by the pandemic, was a great shock for Nordic companies, which began to focus on their cash flows to defend the balance sheet and try to make the business work, while facing containment measures that limited normal development of their business.

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