New data shows that share values on the Helsinki stock market have now been rising steadily for two years, even though Finland’s national economy is struggling. Latest figures for the two-year period show that stock prices have risen by 50 percent, although the country is mired in a long-term recession.
Although the increases have not yet brought stock prices to the peak levels of the last decade before the economic crash, some investors are now warning that a stock market bubble may be looming.
“The problem is that there has been no growth in the real economy,” says Portfolio Manager Simo Rahikainen from the Quorum asset management firm.
“Stock market bubbles occur about every 13 years, and they last about 2 and a half years,” Rahikainen says. “Central banks argue about the methods of bubble detection. There could be a bubble, or there might not be. Time will tell,” he says.
Central bank aid and Finnish greats
One reason for the stock market ascent can be found in the stimulus packages administered by European central banks and the zero-level interest rate market. Investors have put money into listed shares because their returns are greater, even if the risks are higher.
This trend can be seen in other European countries such as Germany and Sweden, who have also experienced steady stock market rises.
The success of the biggest Finnish export firms has also helped boost the Helsinki stock market.
“It does in fact have more to do with the international markets than with the Finnish national economy,” Reima Rystölä of the Varma pension company says.
Rystölä plays down the risk of another stock market crash appearing on the horizon. “Some elements do point to the stock market being a little hot to the touch right now,” he says, “but there are several factors that separate us from the situation that preceded the latest financial crisis.”
US records broken
In the United States, stock market values have escalated to the extent that bubble talk cannot be ruled out. Stock price indexes have broken previous records and debt funds have been pumped into shares at a faster pace than ever.
The amount of indebted capital in the New York stock exchange has doubled since 2009. This so-called debt lever has resulted in great dividends.
“This is a clear case of the redistribution of wealth, and a global phenomenon,” says Simo Rahikainen. “Wealthy investors get higher yields for their investments when the GDP rises along with the average worker’s paycheck.”
There is a flipside to debt-levered stock hikes. When the inevitable share price decline starts, the sellers in the biggest hurry will be the ones with the most debt. Panic can spread quickly and lead to share prices plummeting as much as dozens of percent in a single day.
