Investment | This year is expected to be a good investment year – three professionals tell you where you can expect returns

Of everything despite the adulation, the investment year 2023 was indeed good, and there are many reasons to expect a quite decent investment year from the starting year, according to three investment professionals interviewed by HS.

Interest rates are falling and companies' results are improving. The outlook for professional investors until 2024 is therefore significantly brighter than that of consumers, whose confidence in their own financial situation is now weaker than at any time in 20 years.

Kim Pessala: Growth companies are good places to buy

“Interesting to see what happens when the euphoria experienced in the stock and interest markets in the last two months settles down”, CEO of Evli fund company Kim Pessala says.

The market believes that inflation will fall relatively quickly and that interest rates will no longer be tightened in the United States or in the euro area, Pessala estimates.

And although the central banks do not yet promise interest rate cuts, the market in the United States is already expecting interest rate cuts of 1.5 percentage points for March–April.

Pessala urges investors to be careful with their positive expectations.

The controlled interest rate policy change sought by the central banks, that is soft Landing when it often doesn't work out.

If US economic growth slows down than predicted or the results of large American companies fall short of expectations, the development of the world's largest stock market will guide the development of the rest of the world.

Pessala reminds that the main US stock index S&P 500 is already at the same levels as its all-time highest value was in December 2021.

“It speaks of euphoria.”

Although interest rates would fall, many companies will have to refinance their debts in 2024 with clearly higher interest rates than their old debts, Pessala reminds.

At the same time, in the United States, the government issues a huge number of bonds, which involve a lot of money from interest rate investors. This abundant supply makes business loans more expensive for companies.

Pessala predicts a twofold year for listed companies.

Low-debt, strong companies that can benefit from increasing consumer spending will thrive, but certain indebted companies may struggle even though interest rates have fallen.

Pessalan According to

“We see that many non-listed companies with a lack of capital have to scrap their valuations.”

According to his estimate, interest rates will remain around 2–3 percent in the future.

Evli recommends overweighting equity investments in the United States, which is stronger than Europe, even though valuation levels are already tough.

According to Evli's estimate, you can still get a decent return on business loans this year. In 2023, corporate loans yielded 7–11 percent.

Now the returns are decreasing, but when the interest rates start, Pessala still sees a place for a clear return in corporate bonds.

There are a lot of loans being restructured in Europe this year, and the yield expectation for good-quality corporate loans is 4–6 percent.

In real estate securities Pessala still recommends caution. In refinancing situations of indebted real estate companies, the interest rate on new debts has increased many times.

Pessala sees the situation of Finnish consumers as relatively bright. Although economic growth is close to zero, employment remains good and wages rise.

Finland Pessala already calls the stock exchange “damn cheap”.

According to Pessala, the OMX index has been dragged down by large companies such as Nokia and Neste, both of which have a weight of nearly seven percent in the OMX Helsinki Cap general index.

In many other countries, the standard weight of one company in the index is only 2–3 percent.

“In Finland, there are companies on the stock exchange that have lagged behind in the rise. At our house [Evlin rahastoissa] there is more weight in slightly smaller companies, which are helped by the interest rate drop.”

S-bank's chief strategist Lippo Suominen considers the depressed stock market in Finland to be interesting as times improve. “So much ash has been sprinkled that no one expects anything.” Picture: Sami Kero / HS

Lippo Suominen: No jackpots for interest rate investors

Finland and there is a clear difference in the way the rest of the world is going, S-bank's chief strategist Lippo Suominen start. “We are in a recession, and the market is pricing it in.”

When for example The Bank of Finland predicts Suominen compares that the Finnish economy will shrink by 0.2 percent this year, while economic growth forecasts are only raised in the world.

The growth forecast for the entire world is 1.5 percent, 2.5 percent for the United States and 0.5 percent for the euro area, Suominen lists.

In the past year, the whole world was supposed to sink into recession, but it turned out differently.

In the US, which accounts for more than 60 percent of the global stock market, equity investments returned more than 25 percent if inflation is not taken into account.

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“Already sluggish growth comes as a surprise.”

A year at the end of the year, expectations have already risen so high that a repair shop in the United States at the beginning of the year is quite possible in Finland.

“The market lives on surprises, and already sluggish growth is based on surprise.”

Similarly, if the central bank Federal Reserve's rate cuts are not scheduled until the end of the year, the market will be disappointed.

“The central bank anticipates three declines, but the market expects six.”

Investors are therefore in a better mood than last year, but it is difficult to get a great atmosphere, Suominen sums up.

in Finland would, according to Suominen, in 2024 “afford to succeed”.

“So much ash has been sprinkled on top that no one expects anything.”

Industrial companies have a large weight on the Finnish stock market, and it is industry that has suffered internationally from the economic cycle.

If customers' stocks had already been emptied and industrial orders returned to normal, it would be reflected in the Finnish stock exchange, Suominen explains.

Finnish considers it clear that the time for interest rate hikes is over.

“Now it's about at what pace and for what reason interest rates are lowered.”

In Europe, interest rate markets expect the key interest rate and Euribor to drop to around 2.5 percent at the end of the year. The interest rate on Germany's 10-year loan is already less than two percent, and Finland's 10-year loan is 2.5 percent.

In a way, they are bad news for Finland, because low long-term interest rates indicate that not much growth is expected in the euro area in the long term.

In Suominen's opinion, the European Central Bank raised interest rates in the euro area too high. In his opinion, the euro zone cannot withstand high interest rates in the future either.

“My opinion is that two percent is already a pain point for euro area interest rates.”

For interest rate investors in Suominen's opinion, there are no more jackpots being distributed like last year.

He reminds that interest rates on good-quality corporate loans have already dropped from 4.5 percent to 3.7 percent in a month.

“You can apply for a reasonable return on them with little risk.”

Suominen says that from 2024 he is hopeful, but cautious.

Finland there is more hope.

Adapting to variable-rate loans brings challenges for some companies. On the other hand, valuation levels have fallen rapidly and the industry is no longer going in a worse direction, Suominen lists.

According to Suominen, the lesson of the past year for investors was that the market is surprisingly resilient even in the midst of difficulties.

“Authorities, politicians and states are doing everything they can to save the economy.”

Nordea's equity strategist Hertta Alava expects 2024 to be a good year for equity investors: “If there is 10 percent global earnings growth and dividends on top of that, then you can expect a 5-15 percent return.”

Hertta Alava: A turnaround after the beginning of the year

Nordea recommended an overweight to equity investments in investment portfolios already in September, when inflation seemed to be starting to decrease.

That's how it happened.

In the United States, the euro area and the UK, the weakening of inflation has been clearly faster than expected in the end of the year, Nordea's investment strategy Dear Alava says.

The rapid decline in long-term interest rates in the US and Germany reflects the market's view that inflation was temporary after all.

“It just took longer than originally expected.”

of the United States economic growth withstood the central bank's interest rate hikes well. The sufferers were industry, green investments and the real estate market.

In the United States, the first year went by with companies' results weakening, but in the third quarter the results started to improve.

“For the year 2024, a profit growth of 12 percent is expected. In Europe, expectations are a bit lower, but the trend is turning here as well. It's dark in Europe now, but it can be expected that a turnaround will take place after the beginning of the year.”

Alava reminds that stock market prices are always at least half a year ahead of the state of the economy.

“The worst moments are now over.”

Finland Alava explains the weakness of the stock market in 2023 with the fate of Russia's neighboring marginal market.

“Foreign investors sold a lot at the beginning of the year.”

There is reason to expect good things from the stock market year 2024, says Alava.

“If there is a 10 percent global profit growth and dividends on top of that, then you can expect a return of 5 to 15 percent.”

“So let's start the year with a good mood.”

Bad the development would again almost require some new shock.

“In recent years, quite big risks have materialized – pandemic, war in Ukraine, interest rate shock, inflation shock”, Alava lists.

“But often things work out in the end and the worst-case scenario doesn't come true.”

Hertta Alava also monitors developing markets at Nordea. He says he is following the Taiwan presidential election on January 13 with interest.

“The result can shake up the Asian markets in particular.”