Sweden’s junior market becomes Europe’s hottest for growth stocks
Sweden’s junior market became Europe’s hottest market for raising money for growth companies in the first half of the year as private investors took advantage of favorable tax policies to pick up the index’s technology and healthcare stocks.
Companies on Nasdaq’s First North Growth Market, based in Stockholm, have raised 1.6 billion pounds so far this year, compared with 1.5 billion pounds on London’s alternative investment market, the traditional market leader, according to Refinitiv data.
Retail investor participation in global stock markets has slowed this year as the war in Ukraine, a global economic downturn and rising energy and food costs dampen investor appetite for bets against the small and often loss-making companies.
But they have kept faith with First North companies, including Embracer, Europe’s biggest gaming group and the most traded name on the index, and a range of technology and healthcare companies.
The total increase is a significant swing from last year, when companies raised more than £9.5bn on Aim, almost double the £5.4bn raised on First North. While private investors have stepped back from Aim, they accounted for half of all flows to small-cap listed companies in Sweden in July, Nasdaq figures show.
“The Nordic market seems to have weathered the tribulations of recent years better than the rest of Europe,” says Thomas Thygesen, head of strategy at Svenska Investeringsbanken SEB. “The investor base is more confident and has more capital available for risk.”
The tax policy encourages Swedes to invest in shares, including investment products that do not require investors to pay capital gains tax on transactions. This has meant that the share of the market made up of private investors tends to be higher than in rival markets, although Aim also offers tax relief on capital gains.
Retailers accounted for between 31 and 52 percent of trading in the 10 days following Volvo Cars’ listing on the main stock exchange in 2021, according to data from Nasdaq.
Nasdaq said the clear supply of retail investments encouraged companies to raise money on the First North index. “London has such a huge capital market and it competes with Stockholm. Something has to set us apart: that something is retail participation.”
In contrast, Christopher Raggett, co-head of corporate finance at FinnCap, a stockbroker for Aim companies, said: “One thing driving the bubble of the pandemic was the amount of retail capital waiting to be deployed . . . people are not trading as briskly as earlier.”
But First North, like others, has not been entirely immune to the declines in global equity markets.
The index has seen capital raising fall by more than half in 2022 and its main index is down more than 30 percent this year. The Aim index has fallen by over 24 percent so far this year.
“It’s a tough year for markets in general,” Raggett said. “The amount of capital raised on Aim fell from September last year to January this year.”
And while capital raising at First North is outpacing Aims, “people who are in the market in the Nordics, who can’t compare to anyone else, are finding this is a terrible year,” says Thygesen.