April 2020 Newsletter: Rebound of Baltic Stocks

Updated: Jun 11

Positive market sentiment fully blossomed on Baltic stock market in April. OMX Baltic Benchmark GI index followed stock indices globally and increased by 13.2% (3rd best month in index history), which positions it at -17.57% from its all-time high in February. Baltic stock market investors, who were opportunistic taking long positions in the end of March, enjoyed nice returns on their investment accounts.


Meanwhile, USA stock market (S&P 500 Price Index, USD) increased by 12.68% and European by 6.24% (STOXX 600 Price Index, EUR), being 16.26% and 27.61% lower from all-time highs. The positive boost was primarily caused by Central Banks and the governments, who are doing all in their power to support businesses and citizens. From valuation perspective current PE of USA market is 19x, Europe’s - 15x, while Baltic Market has a much lower multiple of 10x, which is seemingly low, but taking into account forecasted decline in earnings, the markets are not cheap at all.


We have to admit that, though February/March decline was severe, Baltic stock market managed to rebound on Day 23 regardless of the fact that the situation is very uncertain and the significant setback in the global economy is expected.Current sharp turn of events made us adopt a hindsight view and see how long did it take for Baltic market to reach the bottom from the all-time.


Figure 1. OMX Baltic Benchmark GI Index Performance from all-time high. Worst is already behind or ahead?

Source: Alphinox, NASDAQ Baltic


Market decline, which started in February 2007, lasted 525 days before it bottomed, whipping out 79% from its all-time high value. 4 years later Baltic market experienced another correction which lasted 159 days investors losing 25% from its all-time high value. Recently, a market correction that started in March 2018 lasted for 195 days before a bottom was reached, bringing total decline to 13.7%. So, if we won’t test any new lows, then this would be the fastest recovery in the history of the Baltic market. It is noticeable that all these market declines has started in February/March, therefore, perhaps famous saying ‘’Sell in May and go away!’’ should be exchanged with ‘’Sell in February/March!’’.


Baltic Main List stock companies performance


If in March we had just 2 stocks with positive performance then in April the picture was completely opposite - we had just 2 worst performing stocks. In April, all stocks on Baltic Main List rebounded except for: leisure travel company Novaturas and Tallinna Kaubamaja. Though Tallinna Kaubamaja is a special case as the stock went ex-dividends of 0.73 EUR per share and, therefore, TKM’s total return, when dividend reinvested back in the stock, was positive in April, returning 3.87%.


Top performers in April are to be found in Estonia, with Pro Kapital and Silvano Fashion rebounding the most – almost 40% just in 1 month! Though Silvano Fashion is still underwater from the 13th February market top by 12.7%.


It is noticeable that certain stock prices such as LHV Group, COOP Bank, Klaipedos Nafta have been very resilient towards current market decline, showing minimal drop or even gain YTD.


Figure 2. Performance of Baltic Stock market companies & world indices as of 30.04.2020

Source: Alphinox, Thomson Reuters

The reporting season is in its full swing, and currently we don’t see significant negative surprises due to pandemic situation. Naturally, some most affected companies, such as travel company Novaturas and clothes retailer Apranga, reported lower sales and larger net losses. Many others, such as Harju Elekter or Tallinna Kaubamaja, did not yet feel strong effect from the lockdown situation.


Figure 3. Revenue and profit growth of Baltic Stock market companies in 1Q’20 vs 1Q’19

Source: Alphinox, Thomson Reuters


It is worth mentioning, however, that companies also continued to issue profit warnings, stating that prevously released targets for 2020 revenues and profit are no longer applicable.

To conclude, normality is slowly returning to Baltic countries as governments are on their way to lift restrictions while containing pandemic spread. It would be interesting to see if poor macroeconomic and corporate reports during the next months have their effect on optimism ruling on the stock markets.

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