2020 might go down in history of the equity markets for prevailing uncertainty and market crash related to COVID‑19. For many investors upheaval in the markets caused by corona virus in the first half of the year reminded of nothing more than 2008 financial crisis when some US banks nearly took down world’s economy. However, after experiencing significant losses, stock market started a rally what implies a V‑shaped recovery. While world’s equity market now is being dominated and carried by high‑tech stocks, what is the potential of Baltic companies in the market deeply affected by COVID‑19 pandemic?
Even though, based on the GDP growth, the overall economic conditions have significantly improved since the 2008 financial crisis, Nasdaq Baltic remained one of the smallest and with relatively small trading volumes compared to Western Europe stock exchanges. In August 2020 there were 32 companies listed on the main list of Nasdaq Baltic, 28 on the secondary list and 7 in First North1 (Baltic MTF) market. According to SRSS Local Currency and Capital Markets analysis conducted in 2018, due to costs and exchange conditions, in the last decade IPOs (Initial Public Offerings) in Nasdaq Baltic have been rare, the number of listed companies decreased. The total market capitalization2 in Nasdaq Baltic as of August 2020 is about €6 billion (market capitalization has been more or less stagnant since the financial crisis), which is only 5.6% of total Baltic countries GDP – one of the lowest ratios in the EU. Average annual turnover during the last 10 years was nearly €312m what, putting in a comparison, accounts for less than 0.002% of total US stock market turnover in 2019. Therefore, due to the market capitalization, liquidity and smaller variety of companies listed on Nasdaq Baltic, for foreign investors and institutions it is very difficult to invest in the Baltic companies.
After taking a closer look at the few largest capitalization and most actively traded companies on Nasdaq Baltic, it is evident that their market capitalizations and share prices have not changed much over the last decade. Revenue growth of the 6 biggest capitalization companies has also been rather modest over the last three‑year period averaging at only around 3% per year. The limited growth and expansion activities outside of the current home markets has caused the stagnation in many Baltic companies of which many have not been able to exceed their pre‑2008 crisis price levels till now.
The dominating sectors in the Baltic region are consumer discretionary3, financial services, utilities, industrials and communication services.
Nasdaq Baltic total capitalization by sector
Nasdaq Baltic data, August 2020
Although, according to Nasdaq Baltic, many Baltic companies choose to pay out dividends, in the last decade return on investments in these sectors has not been adequate, especially compared with other larger companies listed on more developed stock exchanges. Putting the three‑year trailing returns in the perspective of S&P 500, the majority of the Baltic companies are underperforming, especially in consumer discretionary and information technology sectors.
Trailing three‑years returns
Morningstar and Fidelity data, August 2020
As global stock markets are experiencing a growth boom of various IT companies that are leading the world’s economy out of the crisis, Baltic stock exchange holds only one technology stock that accounts for less than 0.2% of total market capitalization in Nasdaq Baltic. At the same time world’s IT sector is expanding and now makes up more than a quarter of the S&P 500 – 25.78%. Even though globally Baltic region has an image of an innovative e‑region that values IT solutions, the fundamentals of the companies listed on the Baltic stock exchange are not so modern. While global investors might enjoy better returns of investing in innovations and technologies, Baltic investors are putting their capital in older industries, such as farming, shipping, clothing. As there is nothing wrong with investing in time‑tested industries, according to Forbes, COVID‑19 might be the turning point that could cause many investors to shift their capital to international companies that are able to abridge and change their supply chains, expand developments of innovations and accelerate the transition to digitalisation.
Thus, the reality is that Nasdaq Baltic might lack fundamental qualities of a stock exchange, such as size, liquidity, number of companies as well as attractive investment opportunities in the market affected by COVID‑19 pandemic. As of right now, Baltic investors seeking to grow their capital are looking outside of their home market in order to find innovative stocks that are dominating and could grow even in 2020.
“For Baltic States investors accessibility to the foreign stock markets might seem still complex and time‑consuming. Many investors share the reasonable fear of putting their money into foreign stockbroker’s hands”, - said Tomas Vaicekauskas, Luminor Savings & Investment department product manager. “In order to provide a reliable access to foreign stock markets for Luminor clients, last year Luminor Investor4 platform was launched. It is the tool for the Baltic states investors that offers investment opportunities to more than 14 500 non‑complex financial instruments, including stocks, bonds, exchange traded funds (ETFs) and mutual funds.”
1Nasdaq First North is a multilateral trading facility (MTF), also known as an Alternative Market, operated by the different exchanges within Nasdaq.
2Capitalization is the total value of all outstanding shares of a publicly traded company.
3Consumer discretionary is a term for classifying goods and services that are considered non-essential by consumers, but desirable if their available income is sufficient to purchase them.
4More information about Luminor Investor can be found here: