Back to the virtuous circle

In the long term, the Finnish equity market has been one of the best. It is therefore regrettable that the development of the Finnish equity market has not benefitted from the strong rise in other markets since the beginning of 2023. The poor performance can partly be attributed to the one-sided structure of the Finnish equity market, its sensitivity to global demand and geopolitical challenges, as well as the small size and weak liquidity of the market. Fortunately, the equity market has improved in recent weeks and this is expected to continue if the expected decline in interest rates stimulates economic growth in Finnish companies’ export countries as well.

Finnish listed companies are still high-quality, global and have strong balance sheets, and pricing is not particularly expensive either. Finnish companies have been “of the wrong type” considering the current market situation. The AI boom has attracted cash flows, while modest global economic growth has not attracted investors to invest in cyclical companies. We have forestry companies and machine shops, but lack fashionable technology. Not that there would not be any interesting companies in Finland on a broader scale. They are simply small in the eyes of international asset owners, small caps. As a side effect of the AI boom, small companies were forgotten and should now be discovered again. History has a tendency to repeat itself, so there will be a turn for small companies again.

From the point of view of the development of our equity market, the interest of international investors, who now hold just over 50 per cent of shares on the Helsinki Stock Exchange, is a significant factor. There is fierce global competition for capital and investment flows. It can no longer be assumed that Finland will attract investment flows because it did in the past and because the Finnish equity market has historically developed very well. Capital goes where it gets the best returns. Investments must be earned, both now and in the future.

We need to return to a virtuous circle. We need investors that demand their investments to be growing and profitable companies that innovate and create new things. We need investors that seek returns on their money and continue to encourage investment and innovation among their investments. This in turn motivates companies and the people behind them to pursue higher profits, creating incentives to take risks and grow the company.

There are interesting companies in Finland, but there is no interest in them right now. A turnaround in the interest of investors requires a change in either external factors or in the companies themselves. It is more difficult to change external factors, such as lower interest rates, the recovery of economic growth and the reduction of geopolitical tensions. Companies themselves could raise the level of ambition in what they do and make it clear to the world.

Employment pension companies also play a role in raising the level of ambition of companies. Our channels for this include the companies’ nomination boards and regular dialogue with the companies’ management. The nomination boards aim to reform the line-ups of the boards of directors by bringing in fresh candidates. At general meetings of shareholders, we can take a stand on the remuneration of the company’s management and thus steer operations in the desired direction. In discussions with the companies, we share our views as a shareholder in matters related to finance, responsibility and good governance.