Artificial intelligence is now getting all the investors’ attention and probably money, says portfolio manager Juha Varis

Shaking it’s starting to get too familiar. The first half of the current year was once again not a celebration for the Helsinki Stock Exchange.

The development of the domestic stock market has been weak for a couple of years now, and the first two quarters of the current year did not bring any change to the situation.

The general index describing the price development of shares on the Helsinki Stock Exchange has fluctuated during the spring, but finally ended up below the comparison level at the turn of the year on Friday.

At the end of the last trading day of the first half of the year, the index was finally quoted at 9,937.44 points, which means a 1.6 percent decrease from the closing price on the last trading day of last year.

The Helsinki stock exchange has often been called the dividend stock exchange, so it is fair to look at the yield index that also takes dividends into account.

In the yield index, it is assumed that the dividends separated from the company are invested back into shares. In this way, the positive effect of the distribution of dividends is also reflected in the index, not just the drop in price due to the release of the dividend. Dividends are not taken into account in the standard price index.

The yield index (GI) of the Helsinki Stock Exchange did slightly better than the price index in the half-year period, as is typical, but at the end of the half-year it was only 2.1 percent higher than at the turn of the year.

The OMXH 25 index, consisting of the 25 most traded shares of the Helsinki Stock Exchange, ended the half year close to the level at the turn of the year. In the end, the decrease was 0.4 percent.

S-Bank Fenno fund portfolio manager Juha Varis says there’s one theme investors are interested in right now, and that’s artificial intelligence.

“That’s where all the attention and probably the investors’ money is going at the moment. If it doesn’t [pörssissä] ole, has had to manage on his own, so to speak.”

Unfortunately for the Helsinki Stock Exchange, no significant artificial intelligence companies can be found on the Finnish stock market lists so far.

Another reason Varis found for the domestic stock market’s weak bet is more traditional.

“If you look at the total number of profit forecasts of Finnish listed companies, those forecasts have continued to come down. That is due, among other things, to the industry distribution of the stock exchange. If the profit forecasts were raised all the time on a broad front, then yes, it usually fuels the rise.”

On the other hand, Varis highlights the positive profit warnings issued by a few companies during the spring. They were given by engineering companies Valmet and Konecranes, among others.

“It was a really good thing, but very few raised the revenue growth forecast. The relative margin was mostly raised. With the exception of Kemira, the forecast changes were not very drastic, and they were not enough to completely reverse the forecast trend of the entire Finnish market”, Varis estimates.

As a third factor, Varis highlights the tight domestic demand, which has made the operating environment especially difficult for many smaller or medium-sized listed companies in the first half of the year.

Helsinki the stock market is by its nature quite biased. It means that the stock exchange’s largest companies have a large weight in the stock exchange’s central indices.

In addition to all that, many of the large companies on the Helsinki Stock Exchange are established and traditional industrial companies, whose business operations – and thus the share price – are clearly affected by the global economic winds, such as last year’s rapidly rising interest rate.

At the same time, the forward weighting means that when the stock prices of large companies do poorly, the performance of the stock exchange’s key indices is also typically sluggish. Even the bad performance of the shares of individual large companies can be reflected in the general index, although individual companies no longer have weight values ​​similar to Nokia’s peak years.

Frontal bias you can try to peek behind, for example, with sub-indices divided based on market value.

On the Helsinki Stock Exchange, companies with a market value of more than one billion euros are counted among large companies.

The price index focusing on the development of the shares of these companies fell by 1.8 percent in the first half of the year. The corresponding yield index, which takes into account dividends from companies, fared better and rose 1.9 percent.

The price index of medium-sized companies developed slightly better than large companies during the six-month period, but ended up almost exactly at the level of the reference point at the turn of the year. On the other hand, the return index following medium-sized companies rose by 2.9 percent.

Companies with a market value between EUR 150 million and EUR 1 billion are considered medium-sized in the index.

Among the market value groups, small listed companies did best in the beginning of the year. The next price index rose by 6.4 percent in the first half of the year. The corresponding yield index developed even better, increasing by nine percent.

Companies with a market value of less than EUR 150 million are classified as a small listed company on the Helsinki Stock Exchange.

When talking about small companies, it should be noted that their shares are typically less traded than the shares of larger companies. For this reason, the prices of small stocks typically fluctuate faster than others.

To the most important compared to its benchmarks, the first half of the year on the Helsinki Stock Exchange was quite weak. For example, in the United States, the world’s most followed stock index S&P 500 rose by 14.5 percent in the first two quarters, and the technology-focused Nasdaq by more than 18 percent.

The Dow Jones of large companies rose more moderately, 3.8 percent.

It should be noted that the market has been driven by the artificial intelligence boom in the United States as well. Behind Rapako, the biggest companies on the stock exchange just happen to be technology giants, which are at the heart of the artificial intelligence competition.

If you look at the balanced index of the S&P 500, for example, the half-yearly development is much lower: just over four percent.

In a balanced index, all companies have the same weight, while in the actual index the companies are weighted based on their market value. That’s why a few giant companies can drag the entire stock market index behind them.

Europeans The Stoxx 600 index, which broadly follows stocks, and the Frankfurt Stock Exchange’s Dax Performance are also ahead of the Helsinki Stock Exchange in the half-yearly comparison.

The Stoxx rose by 6.8 percent since the turn of the year, while the Dax rose by 8.9 percent.

The CAC 40, which follows the major companies of the Paris Stock Exchange, is close to the readings of the Helsinki general index in a half-yearly comparison. The French index was almost at the pace of its Central European peers at the end of May, but the political turmoil after the European elections has also been reflected in the decline in the country’s stock market during June.

Among the neighboring stock exchanges, the Copenhagen Stock Exchange’s move was the fastest. Its general index rose by as much as 23.5 percent in the first half of the year.

However, the pharmaceutical company Novo Nordisk is largely to be thanked for the rise. The company, which is in high demand for its weight management drugs, for example, is the most valuable company in Europe in terms of market value, and its weight in the general index of the Copenhagen stock exchange is huge.

The company’s stock has increased in price by more than 44 percent during the beginning of the year.

The first year of the Stockholm Stock Exchange was more moderate, but it was also better than the Helsinki Stock Exchange. Stockholm’s general index improved by eight percent in the six-month period.

What is it necessary for the speed of the Helsinki Stock Exchange to improve?

Varis’ answer will hardly surprise anyone: central bank policy rate cuts would be necessary. He mentions especially domestic consumer companies, which would benefit directly from the increase in demand likely to be brought about by the interest rate cuts.

The ECB already lowered its key interest rates once. At the June meeting, the council that decides on monetary policy decided to lower key interest rates by 0.25 percentage points. The market expects that the ECB will lower the key interest rates one or two more times this year.

“One [koronlasku] seems to have already slightly boosted home-buying intentions and the general mood, but yes, more is still needed. That’s where I hope for the ECB’s help.”

On the other hand, from the point of view of Finnish listed companies, Varis would also like interest rate cuts from the US central bank, the Fed. According to Varis, the delay in interest rate reductions can be seen especially in companies on the Helsinki Stock Exchange, which are strongly affected by global economic cycles.

Correction on June 30, 2024 at 9:36 a.m.: In the paragraph about yield indices, the positive effect of stock splits on the index and the drop in price due to the stock’s exit were previously discussed. The correct term in both is dividend.