Key Takeaways:
- Nordic stock markets enter Q4 with varying performances from country to country.
- Analysts see upside in banks, healthcare, and industrials amid lower rates.
- Denmark’s sharp decline weighs on the region, but valuations now look attractive.
As the final quarter of 2025 begins, the Nordic stock markets are coming to the end of a year marked by diverging returns and shifting investor sentiment. The Morningstar Global Markets Index is up 17.7% year-to-date, buoyed by easing inflation and expectations of lower interest rates. Within the Nordics, however, performance has been highly uneven.
Norway, measured by the Morningstar Norway Index, has closely followed global markets, while the Morningstar Finland Index is slightly behind. Sweden, traditionally a bellwether for the region, has lagged with the Morningstar Sweden Index noting a modest 5.8% gain so far this year. The broader region, captured by the Morningstar Nordic Index, is hovering around zero, pulled lower by the Danish market. The Morningstar Denmark Index has fallen 23.0% in the year to date through September 29, positioning it for its worst annual loss since 2008, when it fell 47.0%. All data is in base currency.
“The Danish market has faced significant challenges so far this year,” says Frank Øland, head of investment strategy at Danske Bank. “Earlier years’ outperformance has now been fully reversed, making the index increasingly attractive.”
Despite uneven returns across the region, Øland holds a positive overall view on the Nordic markets, pointing to attractive valuations and improving macroeconomic conditions.
Banks, Healthcare, and Industrials in Focus
Danske Bank currently favours Nordic financials, especially banks, which Øland argues are well positioned to benefit from a steepening yield curve, resilient economic growth, and solid earnings momentum.
“The sector offers fair valuations and good momentum,” Øland adds.
Another area of interest is healthcare, especially in Denmark, which Øland says is home to some well-run companies with strong earnings growth and long-term potential. He notes the sector has been somewhat overlooked recently due to perceived risk, but appears increasingly attractive.
Karen Andersen, director at Morningstar, sees potential in Danish pharmaceutical giant Novo Nordisk NOVO B, whose dramatic 42% share price decline this year has been a major drag on the Danish equity market.
“We think the market underappreciates the long-term potential of Novo’s cardiometabolic pipeline, which should be further maximized under this new plan,” Andersen says, referring to Novo Nordisk’s announced restructuring.
The industrials sector is also gaining attention, supported by signs of a rebound in global manufacturing activity and the potential rotation away from services. Sweden, with its deep industrial base, stands out as a key market to watch.
“Peace in Ukraine would also be supportive for this sector,” says Øland, although he adds that such a development is unlikely in the short term.
Structural Trends: Defence and Green Transition
Defence is another area where Danske Bank sees long-term structural potential. Øland acknowledges that valuation concerns are emerging, but the geopolitical climate suggests the theme is here to stay.
“Defence is increasingly becoming a megatrend,” he says, while noting the limited number of investable Nordic defence names.
Aerospace and Defence companies Saab SAAB and Kongsberg Gruppen KOG are not offering attractive valuations at the moment according to Morningstar analyst Loredana Muharremi. She views Kongsberg Gruppen as fairly valued, while Saab is overvalued, trading at a 18% premium to her fair value estimate of SEK 490.
In parallel, the green transition remains on the radar. Although clean energy and sustainability-linked sectors have faced headwinds recently, Øland believes they are likely to offer good opportunities in the not-so-distant future, especially as financing conditions improve.
Orsted ORSTED exemplifies the sector’s challenges. The company’s shares are down 40% year-to-date and 55% over the past 12 months, following an EUR 8.1 billion rights issue and a stop-work order from US authorities on its Revolution Wind project.
Although Orsted has limited earnings sensitivity, its share price is sensitive to interest rates, as offshore wind projects have a long duration and limited returns,” explains Tancrede Fulop, analyst at Morningstar, who recently cut his fair value estimate on the stock by 40% to DKK 170.
He now sees Orsted stock as undervalued, currently trading at a 31% discount to his revised fair value.
Risks: Currency, Tariffs, and Geopolitics
The lower interest rate environment is broadly supportive for Nordic economies and equity markets. However, Øland cautions that currency developments, particularly a strengthening of Nordic currencies against the US dollar, as well as trade-related risks like tariffs, could act as near-term headwinds.
He also points to geopolitical risks, especially the potential for further escalation of the conflict with Russia, as well as the risk that investor confidence in Europe fades. This could threaten momentum in areas like defence and infrastructure investment, which have been important drivers for regional markets.
“The outlook for the Nordics is closely tied to investor confidence in Europe. Should trust in Europe – including the ongoing investment boom in defence and infrastructure – begin to fade, this could negatively impact Nordic equities", says Øland.
