Investment | The portfolio manager defends the sinking Helsinki Stock Exchange: “The game is not lost”

Helsinki the outlook for the stock market is not as bad as has been presented in the public recently, but there can be quite a good return.

This is the opinion of the founder and portfolio manager of the asset management company Aristoi Capital Management Antti Bergholm.

“There is no reason to sprinkle ashes on yourself and think that the game is lost,” says Bergholm.

He wants to put an end to the recent public talk about the bleak future of the Helsinki Stock Exchange.

Many other investors have recently interpreted the prospects of the Helsinki stock exchange as significantly worse. For example In the case of HS Vision in May, investment industry professionals estimated that the Helsinki Stock Exchange is not among the winners of the future. According to them, Finnish investors should invest the majority of their assets abroad, especially in the United States.

Even more ordinary small investors have already done this, as the decline in Helsinki has continued year after year at the same time as other stock exchanges have broken new records.

Also CEO of the employment pension company Varma Risto Murto warned in an interview with Helsingin Sanomat at the end of May, that occupational pension companies will have to think more about investing their funds abroad if the weak development of the Helsinki Stock Exchange is not curbed.

Even Bergholm does not deny the poor success of the Helsinki Stock Exchange in recent years – the background is both the problems of individual companies and the impact of the weak economy. It is difficult to know the exact reason for him.

However, according to him, assessments should not be made based on past developments.

“In investing, it is easy to refer to things that have already happened. Instead, it is very difficult to see what will happen in the future,” says Bergholm.

Those who are pessimistic about the future of the Helsinki Stock Exchange believe that it is a matter of longer-term prospects, i.e. that the current industry structure of the stock exchange cannot offer strong growth in the future.

The reason for this is that the Helsinki Stock Exchange lacks megatrends like artificial intelligence that bring growth. On the other hand, there is a large weight on traditional industry, from which we should not expect strong growth.

That is, even if the stock exchange in Helsinki turns up, the turn may be weaker than elsewhere.

Where Bergholm’s belief in good prospects is based on?

“There are always many factors behind a price increase,” says Bergholm.

According to him, the stock market can do well, even if it is not part of the artificial intelligence boom. According to him, the stock exchanges in Stockholm, Copenhagen and Paris are proof of that.

According to him, the gloom has also created an incorrect image that everything on the Helsinki Stock Exchange is on sale.

According to him, it is rather that the prices elsewhere are exceptionally high, while in Helsinki, the pricing of shares is at a fairly standard average level.

Bergholm’s in my opinion, the Helsinki stock exchange has only had a bad phase, but it may end unexpectedly.

“Different stages are part of long-term ownership. You just have to endure them,” says Bergholm.

Changes often happen unexpectedly. According to him, for example, the stock market will not fall indefinitely. They may go up or down momentarily, as investor sentiment can change very quickly.

In Bergholm’s opinion, the Helsinki Stock Exchange has better conditions to offer a reasonable return than, say, the Stockholm Stock Exchange or some other market that is already at a high level.

The ascent can start almost anywhere. For example, the industrial cycle can turn unexpectedly or the interest rate drop, which would be reflected in construction and the economy in general.

Bergholm emphasizes that the stock market often lives its own life regardless of many short-term facts. Because of this, in his view, stock market prospects should not be justified by, for example, the growth of the gross domestic product or the growth of company profits or profit forecasts.

For example, the continuation of the rise of the US stock markets is often justified by the fact that there is no end in sight to US economic growth.

“These are awkward factors, and academic research also shows that they have nothing to do with the development of stock exchange rates. Many investors will be surprised by how weak a connection they really have with stock returns in the short or even longer term,” says Bergholm.

According to him, economic growth is not always directly visible in the stock market. China is an example of this.

Although, according to Bergholm, the concern about the structure and renewability of the Finnish economy and industry is justified, in his opinion, the issue has no direct connection to the stock market. It does not mean that Finnish listed companies cannot produce well.

He reminds that in history, Helsinki has been among the world’s best-performing stock exchanges.

All based on this, Bergholm says he expects an annual real return of 5–7 percent from the Helsinki stock exchange in the long term.

According to him, the problem is that many ordinary investors focus too much on short-term returns. In the short term, stock prices are primarily driven by the momentum phenomenon, i.e. the stock market continues in the same direction where it is going – up or down.

In Bergholm’s opinion, there is no credible method for predicting exchange rates a year or two from now.

“I myself would use the term speculation for short-term betting. I don’t even consider it a decent investment and I can’t really recommend it to anyone,” notes Bergholm.

In his opinion, an investor should always look further ahead, at least five years ahead or preferably ten years ahead.

Then the valuation levels of the shares already matter, and the position of the Helsinki Stock Exchange is even better than, for example, New York.

What does Bergholm think that many Finnish investors have already shaken off the dust from Helsinki and are looking for better returns across the Atlantic?

“I wouldn’t make such a move as to sell the investments on the Helsinki Stock Exchange and exchange them for the US stock exchange,” says Bergholm.

If you have decided to invest in Finland, the fact that things are temporarily better somewhere is not a reason to change your basic strategy or the structure of your portfolio, Bergholm emphasizes. Or you have to rethink the entire investment strategy in the long run.

According to him, international diversification is important, but it should be done carefully and over a long period of time.

He emphasizes that diversification should not be done on the basis of what the stock markets have produced recently, but to think about a longer-term allocation.

In Bergholm’s opinion, it also makes sense for most people to continue to invest a significant part of their funds in their home country, i.e. in the market they know best.

In the world, the United States and Europe are sufficient for diversification.

Bergholm points out, however, that right now the US market is exceptionally expensive – also for non-technology stocks.

“In this case, it can happen that the return of many US stocks or even the entire market can remain weaker than usual for years.”