Denmark is among the few countries with a positive economic outlook in the uncertainty-ridden EU. According to the Danmarks Nationalbank, the Denmark economy has defied the slowdown witnessed in most of its competitors and maintained robust growth in the first half of 2019.
The report by the Danmarks National bank predicts that the country's GDP will grow by 1.8% this year. Furthermore, the economy will maintain a growth of 1.5% per year through 2022. This rate of growth is slightly lower than the last two years, but it is promising when compared to other countries in the Eurozone.
For investors, Denmark resilience makes it a haven for long term investment. Lars Rhode, Danmarks National Bank governor, notes that despite the slowdown, the Danish economy will still be in a boom period. A slight decline in a boom period is known to prevent the economy from overheating hence safeguarding it from the risk of a deep recession.
Copenhagen Stock Exchange
Copenhagen Stock Exchange (CSE), also known as Nasdaq Copenhagen, is Denmark’s official market for securities. The bourse was incorporated in 1996 and lists different instruments including shares, fixed income securities, and derivatives.
Furthermore, the exchange is a member of the OMX Exchange group which is now part of NASDAQ. Other stock exchanges in this group include Stockholm, Iceland, and Helsinki.
Stock market analysis
The positive sentiment about the economy is already reflecting on the Danish stock market with analysts predicting significant growth in 2020 and beyond.
According to Trading Economics, OMX Copenhagen has grown by 16.60% since the beginning of 2019. For the record, the OMX Copenhagen index consists of 20 most traded stocks in Copenhagen Stock Exchange.
Trading Economics predicts that the stock market will decline slightly by the end of this year as the global uncertainty continues to rise. Investors should capitalise on the slowdown by buying stocks since the markets are expected to rebound fully and take-off by late 2020.
Weaker Krone is good for the stock market
Denmark has a reputation of extremely low-interest rates mostly into the negative. In September 2019, Denmark Central Bank cut its key deposit rate by ten basis points to negative 0.75%. This is the lowest among competitors in the EU, Asia, and the US. Denmark Mortgage rates are also at a record low at 0.5%.
Low-interest rates result in a decline in foreign direct investment hence weakening the demand for a currency. Consequently, the Danish Krone is at its weakest point and will remain so as long as interest rates remain low.
A weak currency favours exports hence increasing the profits for exporting firms. The result is robust growth in the stock market as more money flows in from the exports. As an export-driven economy, Denmark stands a better chance of growth than its close competitors. The Krone is currently trading on the weak side of its parity with the EURO, British Pound, and USD.
Trade Euro / Danish Krone CFD
Low-interest rates also mean that companies can borrow at a cheaper rate. This increases profitability resulting in more capital for growth and a higher dividend payment for investors. The low-interest rates also make savings and bonds unattractive, and hence more money is invested in the stock market.
Best stock to buy in 2019
As mentioned earlier, value stocks are the best option for people looking to invest in Denmark. A value stock trades at a lower price relative to its fundamentals, including dividends, earnings, or sales.
Our top value stock pick in the Denmark stock market is the pharmaceutical company Novo Nordisk B (NOVO-B). Wallet Investor predicts that NOVO-B stock price will hit DKK380.727 in the next one year and DKK493.829 in the next five years. The share is currently trading at DKK352.150. Revenues are also expected to grow by 40.23% in the next five years.
NOVO-B has a lengthy dividend payment history with its per-share payments increasing gradually over the last ten years. The stock has a trailing 12 months dividend pay-out ratio of 51%, which is sustainable. Analysts expect the pay-out ratio to remain around the same level of 50% in the coming years.
Moreover, Data from Simply WallST shows that NOVO-B fair value is DKK 467.44, which means that it is slightly undervalued. Its PE ratio of 22.5x is also below the pharmaceuticals industry average at 23.9x. However, the stock appears overvalued when PEG and PB ratios are considered. Even so, the stock makes a good buying case when all factors are taken into consideration.
Vestas Wind (CPSE: VWS) is another stock to observe for those looking to invest in the Danish stock market. This company’s ROE over the last 12 months is 17% which is higher than the industry average of 10%. Even better, Vestas Wind has a highly manageable debt to equity ratio of 0.19.
Simply WallST predicts that the stock will maintain a stable earnings growth at a rate of 11.9% per year until 2023. Analysts predict that Vestas Wind stock growth will skyrocket from then as the global uncertainty wanes. Vestas Wind is a good dividend payer and hence is a good source of passive income for those investing in Denmark.
Denmark is among the few EU countries that appear resilient enough to withstand the ongoing global uncertainty. While the country is not immune to a slowdown, it is nowhere near a deep recession. Consequently, the Danish stock market is a good bet for long term investment.