Nasdaq-Owned Danish Market Is Thriving -- WSJ
By Ben Dummett
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (August 4, 2020).
Nasdaq Inc. is cleaning up on both sides of the Atlantic.
In the U.S., the stock-exchange operator's Nasdaq indexes are
the country's best-performing major stock benchmarks this year. In
Europe, the Nasdaq-owned Copenhagen exchange's index is leading the
Like its U.S. counterpart, Denmark's stock exchange is thriving
in a coronavirus world. But the narrower base of big stocks behind
the gain could make it a riskier bet.
The Copenhagen exchange's OMX Copenhagen 20 index is largely
dominated by the health-care sector. High single- and double-digit
gains in three constituents -- Novo Nordisk A/S, Genmab A/S and
Coloplast A/S -- all of which are health-care stocks, have helped
lift the benchmark more than 13% year to date. Meanwhile, Europe's
other 18 country equity benchmarks are all trading lower.
That outperformance comes as Europe battles the
coronavirus-induced recession, pushing investors into so-called
growth and defensive sectors. Health-care stocks are often in that
group because sick people can't do without drugs and treatment.
Insulin maker Novo Nordisk and Coloplast, a supplier of continence
care and other products, both reported higher sales for their
latest quarters, citing supply stockpiling as a reason.
Still, the concentration leaves the market index at risk of an
abrupt downturn if any of these health-care companies suffer a
surprise setback. Novo Nordisk, for example, carries an index
weighting of 33%. That compares with a combined weighting of about
40% for the five biggest stocks in the Nasdaq Composite Index --
Apple Inc., Microsoft Corp., Amazon.com Inc., Facebook Inc. and
Alphabet Inc. -- big drivers behind its outperformance in 2020.
Together with Genmab, a Danish biotech company, and Coloplast, the
three health-care stocks' total weighing is close to 50%.
"There is some stock-specific risk that you really need to look
out for, " said Kenneth Lamont, a research analyst at
In 2018, Novo Nordisk fell 7.3% in one session on disappointing
earnings. Danske Bank at the time blamed the sell off for a big
part of a 3% drop in OMXC20 and its underperformance against rival
markets that day.
The Xact OMXC25 and iShares MSCI Denmark ETF are exchange-traded
funds that allow investors to bet on the Copenhagen exchange. While
each ETF tracks more companies than included in the OMXC20,
health-care weightings remain the biggest for each.
The OMXC25 trades at around 29 times projected earnings of the
constituent companies, compared with a 10-year average of 18.6
times, according to Danske Bank, suggesting valuation is another
potential risk. The growth outlook of companies such as Genmab
helps to explain the richer valuation. In June, the biotech company
struck a $750 million deal with AbbVie Inc. to develop cancer
treatments, and the stock is up about 15% since then.
Still, Danske Bank recommends underweighting the Danish market.
Growth stocks like health care are expensive, and more cyclical
stocks should perform relatively better over the next three to nine
months as the economy recovers, said Chief Equity Strategist
Germany's DAX stock index, which has big weightings in
industrials and autos, has gained more than 45% from its low in
March, outperforming the OMXC20's 37% gain over the same period, in
a possible sign of support for that view.
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(END) Dow Jones Newswires
August 04, 2020 02:47 ET (06:47 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.