Why The Nordic Stock Markets Have Outperformed The Global Markets

The Nordic/Scandinavian region gets lots of coverage for their welfare models and statistical happiness, but perhaps lesser known is that its stock markets have performed really well over the last 50 years. I define the Nordics as Norway, Sweden, Denmark, Finland and Iceland (Scandinavia is Norway, Sweden and Denmark). The languages are related and easy to understand between each other, with the exceptions of Iceland and Finland.

The US stock market attracts most of the attention, deservedly so as it’s home to 50% of the world’s stock market capitalization. But the Nordic region has managed higher annual returns over the last 50 years, according to Dimson, Marsh and Staunton, the authors behind Triumpf of the Optimists.

In this brief article I give some brief reasons for why the companies have generated high returns, and why it’s likely to continue to do so:

Reason number 1: High returns since 1965:

Stock market performance in the Nordic region has been equal or better than in the USA.

Source: Dimson, Marsh and Staunton (The authors of Triumph Of The Optimists). Real returns.

It turns out the region has outperformed the US markets since 1965, perhaps a bit surprising (?).

Reason number 2: Many interesting small caps – which have outperformed

My rough calculations indicate there are almost 1 000 listed/OTC companies in the region. Furthermore, the small caps have outperformed both global and US small caps for a long time: MSCI Nordic small caps have returned 11.9% since 2000:

MSCI Nordic MSCI Nordic MSCI World
Small Cap Countries Small Cap
2006 53.79 39.26 17.2
2007 1.5 21.24 0.79
2008 -62.35 -53.52 -41.88
2009 100.41 47.07 44.12
2010 27.98 25.06 26.13
2011 -22.68 -17.9 -9.06
2012 23.93 22.08 17.55
2013 35.66 25.13 32.38
2014 -5.05 -5.72 1.9
2015 12.89 2 -0.31
2016 7.5 -4.13 12.71
2017 21.65 25.6 22.66
2018 -12.72 -12.07 -13.86
2019 24.48 19.95 26.19


3 Yr CAGR 5 Yr CAGR 10 Yr CAGR CAGR since Dec. 2000
MSCI Nordic -2.86 2.28 5.36 9.78
Small Cap
MSCI Nordic 0.31 -0.22 3.91 3.69
MSCI World -3.95 0.06 5.89 6.91
Small Cap

The results are confirmed according to this study from Alfred Berg. Carnegie Nordic Small Cap Index has performed well:

Return 2002-14 Std. Deviation
Carnegie Nordic 11% 20%
Small Cap
Russell 2000 8% 19%
MSCI Europe small 10% 18%

Sweden has the most interesting small caps, in my opinion, and also more of them compared to its neighboring peers.

Reason number 3: Many global brands

Being such a tiny region with just 28 million people it has a huge number of solid world-wide brands:

Volvo, H&M, Novo Nordisk, Spotify, Skype, Electrolux, Evolution Gaming, Alfa-Laval, Jotun (paint), IKEA, Equinor, Maersk, ABB, Assa Abloy, Autoliv, Atlas Copco etc. However, the industrial structure varies between each country. For example, Norway has a more concentrated sector in oil/gas, fish, shipping and some commodities, while Sweden and Denmark has a much more diversified industrial base.

Why does the region have so many global brands?

Due to small size and population most companies are “forced” to expand internationally. In order to compete on the world markets, the local economy has lots of incentives to stay competitive.  Exports and foreign trade are paramount: Sweden exports 43% of its GDP, Norway 37%, and Denmark 55%. For comparison, the US only exports 11% and UK 32% (source: CIA’s World Factbook). The negative effects are of course vulnerability to global business cycle fluctuations and the world economy.

The Covid-19 crisis most likely leads to some sort of de-globalization, in which small and open countries might face some headwind compared to bigger countries. For example can the US more or less be self-sufficient on practically everything, while this of course is much more difficult for smaller nations.

Reason number 4: The mindset

The culture and mindset are perhaps the most important factor. Since the first humans settled in the area life has been hard. This, coupled with an ascetic and protestant culture, have lead to a long-term mindset where hard work is a virtue. In former times you simply had to prepare in advance to survive the next winter(s). This mentality still exists, but the welfare state has somehow changed this behavior. The welfare state is dependent on trust, and this is something the region has a lot of.

An example of the long-term mindset is the Norwegian Sovereign Wealth Fund (SWF). Since its inception about 3 300 billion NOK have been invested, while as of today its value is about 10 000 billion NOK (about 200 000 USD per capita). The fund is set up so future generations can reap the returns while the capital stays intact. Compared to most oil-exporting nations, I would say Norway has been extremely successful (so far at least), and this is not due to luck.

Reason number 5: The culture defines the politics

The Nordic countries are at the top of both economic competitiveness, social health and happiness. As a Norwegian, I believe that cultural reasons are the reasons for this and not political reasons. The culture defines the politics, not the other way around. You can’t just “export” this model to other countries and cultures. In general, people are honest and trustworthy, care for each other, are organized, pull together if need to, there is rule of law, property rights are respected, low crime rates, little corruption, long-term mindset and a protestant work ethic. Practically the whole population agrees on the main social issues in all countries. Additionally, the Jante-law is working as an informal code of conduct.

Reason number 6: Not as “socialistic” as many believe

It’s a relative business friendly region where productivity, the most important factor to create wealth, is ranked among the top. Capital are taxes less than salaries, which of course leads to accumulation of capital. Furthermore, company tax rates are quite low (in Norway 22% and no taxes on dividends and capital gains inside the EU/EEA) and the ease of doing business is relatively high, despite state’s share of the GDP at around 50%. In 2017 Norway introduced a new optional tax regime for private investors where capital gains and dividends are deferred as long as it’s reinvested (unlimited amounts). Sweden has had this option for some time already.

However, to my knowledge Sweden was ranked as having the fourth highest GDP per capita in 1970, while they have slipped on the rankings over the years. This article, in Swedish, highlights the historical taxation rates in Sweden. What the future holds is of course unknown, but all Nordic countries face the same problems as most of the Western world: a growing elderly population, low birth rates and a steady increase in the number of people depending on the fewer tax-paying workers (relatively).

Is the welfare model sustainable? More and more people live fully or partially on welfare, in Norway this is about 12% of the working population (among those who either could work or be self-employed). This number has steadily increased for decades. Furthermore, the growth in pensioners starts rising rapidly from about 2025. Still, currently the deficit is huge, around 15%, which is being covered by the SWF. Around 225 000 people are directly or indirectly employed in the oil sector, that is 4.5% of the whole population. Needless to say, with the low oil prices Norway gets a real punch in the face and has in April 2020 recorded the highest recorded number of unemployed since 1933.

So far the low birth rates have been more than offset by immigration, and all countries have had a steady growth in the population for decades.

Reason number 7: Limit exposure and risk

A lot can be said about diversification. Warren Buffett talks about “diworsification”, but he is of course an unique investor. Most of us are not, and we certainly don’t have the time to focus on picking stocks as a full time job. We either have to pick money managers or passive funds. Personally, I want to have a broad exposure.

The benefits of owning international stocks are empirically documented. Most investors have a home bias, but the US is “only” about 50% of the world’s market capitalization, and that means there are lot of opportunities elsewhere. Empirical evidence suggests investors can get both better return and less risk in the form of volatility by diversifying (volatility is the normal risk measure, but of course the real risk is lack of returns). Many retail investors panic and sell when they see their holdings drop, and hence it makes sense to ask yourself how well you can handle volatility. Most investors forget their long-term goals in times of stress, and the result is bad decisions.

Obviously the case for international diversification is better the smaller your home market is. We can argue you get a lot of diversification because US companies derive a lot of their income from abroad (among S&P 500 43% is international), but in reality local multinational companies offer less possibilities for diversifying risks than international stocks, according to the Central Bank of Norway (in Norwegian), the manager of the world’s biggest sovereign fund.


Disclosure: I am not a financial advisor. Please do your own due diligence and investment research or consult a financial professional. All articles are my opinion – they are not suggestions to buy or sell any securities.