(Bloomberg) -- One European stock market has clawed back most of its losses in 2020, thanks to a heavy weighting of health-care stocks. And it’s not Switzerland.
Denmark’s OMX Copenhagen 25 Index on Thursday came within 2% of turning positive for the year. The reason? Roughly half the benchmark’s weighting comes from pharma shares, which have proven more resilient than most in a global economy ravaged by the impact of the coronavirus. Green stocks have also boosted the gauge.
That’s put the country’s equity benchmark well above its peers -- the next best performer is the Swiss Market Index, down more than 9%. The broader Stoxx Europe 600 Index too remains well below the levels it started the year at, despite a rebound from a March low. The narrower OMX Copenhagen 20 Index, in which Novo Nordisk A/S has a 40% weighting, is already up 3.4% for the period.
Denmark has opened primary schools and allowed some small businesses to resume their work, saying its early restrictions helped contain the spread of Covid-19, even as other countries such as the U.K., Spain and Italy have extended curbs. The country this week announced it will dramatically increase the number of daily tests for the infection, a portion of which will be under a new program partially funded by the Novo Nordisk Foundation.
“It’s more a health-care and green stocks story than that Denmark is great,” said Peter Garnry, head of equity strategy at Saxo Bank in Hellerup, Denmark, noting the heavy weighting of stocks such as Novo Nordisk, Coloplast A/S and utility Orsted A/S. His firm is negative on equities. “Health care is defensive, so we have a positive view on the sector, although valuation is getting stretched.”
With the virus outbreak forcing sweeping lockdowns that have shut down most stores, businesses and curbed travel and transport, health-care shares have fared better than all other industry groups in Europe this year.
Denmark’s stock benchmark is also benefiting from green names: Orsted’s earnings are more immune to the Covid-19 crisis than most other European power generators, Bloomberg Intelligence wrote in a report ahead of the company’s results next week.
Still, demand for defensive sectors has made Danish stocks too pricey for some. The benchmark is trading two standard deviations above its historical average relative to the MSCI World Index, notes Mattias Sundling, a senior strategist at Danske Bank A/S.
“The region is too expensive in our view,” he said by email. “We see flat returns in the coming 12 months in Danish indexes, so it is a region we are currently underweight.”
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