Sweden’s junior market became Europe’s hottest market to raise funds for growth companies in the first half of the year as retail investors took advantage of favourable tax policies to snap up the index’s tech and healthcare stocks.
Companies on Nasdaq’s First North Growth Market, based in Stockholm, have raised £1.6bn to date this year, compared to £1.5bn on London’s Alternative Investment Market, the traditional market leader, according to Dealogic* data.
Retail investors’ participation on global equity markets has slowed this year as the war in Ukraine, a global economic slowdown and rising energy and food costs dampen investors’ appetite for taking punts on the small and often lossmaking companies.
But they have kept faith in First North companies, including Embracer, Europe’s largest gaming group and the most actively traded name on the index, and a series of tech and healthcare companies.
The total raised is a considerable swing from last year, when companies raised more than £9.5bn on Aim, almost double the £5.4bn raised on First North. While retail investors have stepped back from Aim, they accounted for half of all flow into small-cap listed companies in Sweden in July, Nasdaq figures show.
“The Nordic market seems to have weathered the tribulations of the past few years better than the rest of Europe,” said Thomas Thygesen, head of strategy at Swedish Investment Bank SEB. “The investor base is more confident and has more capital available for risk.”
Tax policies encourage Swedes to invest in stocks, including investment products that do not require investors to pay capital gains taxes on transactions. That has meant that the proportion of the market that is made up by retail investors tends to be higher than on rival markets, although Aim also offers tax breaks on capital gains.
Retail traders represented between 31 and 52 per cent of trading in the 10 days after Volvo Cars’ listing on the main exchange in 2021, according to data from Nasdaq.
Nasdaq said the ready supply of retail investment was encouraging companies to raise money on the First North index. “London has such a huge capital market and it’s competing with Stockholm. Something’s got to be setting 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 aren’t trading in as lively a fashion as previously.”
But First North, like others, has not been totally immune to the declines on global equities markets.
The index has seen capital raising fall by more than half in 2022 and its main index is down by more than 30 per cent this year. The Aim index has fallen by more than 24 per cent so far this year.
“It’s a tricky year for markets generally, said Raggett. “The amount of capital raised on Aim fell off a cliff from September last year to January this year.”
And despite capital raising on First North surpassing that of Aim, “people who are in the market in the Nordics, who don’t compare with anyone else, are finding this is a horrible year,” said Thygesen.
*This has been amended to clarify the data was from Dealogic