Greetings, listeners of the Inderes Podcast. Today we are discussing European stock markets with Nordea's Senior Strategist Hertta Alava. On this podcast. What do the European stock markets look like? What are we actually getting exposure to here and which sectors are the most interesting right now? And of course, we also have to talk about the risks. Hertta. Welcome back to the Inderes Podcast!

Thank you, it's great to be here.

You've been here a few times before, but this is the very first time we get to discuss together.

Yes, that's right, I've chatted with Marianne and also talked about Nordic shares. So now we'll talk a bit about Europe.

It's good to talk about Europe. Investors often direct a lot of attention. Attention is naturally directed across the Atlantic or even to Asia, where there are many technology companies. If an investor invests in Europe, as many Finns surely do, what kind of exposure do you actually get here?

If you first look at the country breakdown, for example, the UK is clearly the largest country there, accounting for around 20 percent of the index. And then there are the big ones. France and Germany are pretty much the same size, and Switzerland is too. And only then come the Netherlands and Sweden, and much later Finland and even smaller countries. If we look at it by sector, we have a few large sectors there, namely banks. The financial sector in general is really big. Then we have industrials and pharmaceuticals. The share of technology is probably still below 10 percent. That is perhaps the biggest difference when you think about how European stock exchanges compare to the United States. So in that sense, you can certainly think that if you want to invest outside the technology sector, Europe offers diversification into these other sectors, some of which are defensive, like pharmaceuticals indeed, and then some have this investment-driven demand. Then there are quite a few traditional industrial countries and also some currencies. Meaning the Swiss franc. The British pound brings some exchange rate risk, but the euro area is of course the large block.

When people talk about America, they often talk about the S&P 500 index. The world's most followed stock index, or the Nasdaq if it's a bit more tech-oriented. In Europe, our own S&P 500 is something like the Stoxx 600 and similar.

Yes, I would say that when I talk about European stock markets, the Stoxx 600 is usually that index. Funds actually more often use the MSCI Europe index, which is perhaps just due to the fact that MSCI indices are typically used, so it's then easier for all funds to use. It's a bit like how MSCI USA exists, but no one ever reports how MSCI USA performed today; it's always the S&P 500.

Right, many people might immediately associate pharma, industrials, and banks with old economy companies, yet they are companies that have managed to adapt to technological changes throughout history. What sectors does Nordea currently find the most interesting in Europe?

We do see the financial sector as interesting. And now, of course, I'm not speaking just for Nordea, but simply from the perspective that loan demand has finally started to grow in Europe. Because we had quite anemic years here. Due, of course, to interest rates rising so sharply and all these other geopolitical uncertainties and such, so we had a really weak period. The level of investment was really weak for many years, but now it has clearly been seen that the lending taps have opened up and large companies are investing. Smaller companies are investing. We have a huge number of startups that probably need funding even more, but in any case, core business is clearly growing there, and then interest rates. Even though many people are naturally unhappy that interest rates have gone up if they have their own mortgage. But for banks, it is of course an absolute necessity that interest rates are somewhere other than zero. So the fact that interest rates have risen and the yield curve is upward-sloping means that banks can generate returns through their core business.

And then banks across Europe have also expanded their operations quite a bit; precisely because the zero-interest-rate period was so long, they had to look for business that generates fee income, so wealth management business has been grown quite strongly. Nowadays, in quite a few countries—not just in Finland—we've seen something like an investment boom, where a great many households have started investing, which naturally benefits the financial sector. And then investment banking. Even though European banks are not quite as major players in investment banking as US ones. But they are, nonetheless. So we see that when the interest rate environment is. Even though interest rates are rising a bit again now. But that it's not the kind of shock it was back in 2022, various M&A deals have started up quite nicely. IPOs to some extent, and since there are so many of these startups now, there are probably quite a few of those still to come. So quite a variety. There are many different drivers there. So I think the banking sector in general looks quite interesting.

And then of course industrials are. It's interesting that it has also been overweight for us globally. But somewhat related to what I already said, when investments grow, that is naturally reflected on the industrial side. If things were to go well now, so that, for example, the Middle East situation did not trigger a new energy crisis, we could even see an investment boom that would benefit many European companies as energy, clean energy solutions, and other such things are built to help reduce energy demand. And electrification and defense in general are a huge theme. And then this concept of self-reliance. We went through a long period where globalization was the big theme—moving production to where it's cheap—and now we are pulling back home to some extent, as it became clear during the pandemic that it's quite difficult when production is very far from home. And then came security policy concerns. In addition to just having to consider what political risks are involved. So now production is being brought back at least to some extent, and that requires factory investments.

And then of course technological self-reliance; earlier, say, even before the last US election, there probably wasn't a major concern about Europe being heavily dependent on US technology. But now it is, nevertheless, such a thing. Let's say that even if it hasn't materialized in that way yet, it cannot be completely ignored that on that side too, if semiconductors, for example. They need to be built. We certainly have quite a lot of various industrial activity going on here, so if energy and interest rates don't interrupt it now, those are, I think, the most interesting sectors in Europe right now. Then, of course, we do have some really interesting technology companies, and we are very positive on technology globally. But then again, we don't have all that many of them on the stock exchanges, which is perhaps worth mentioning. As we already talked about the structure of the exchanges, the Dutch company ASML, which makes the lithography machines used to produce these semiconductors, is nowadays the most valuable company in Europe within these indices. So there is some high tech there, but certainly not enough yet.

If you think about it. I have a background in economic history myself, so I like a longer-term perspective. In a way, Europe's poor reputation as an investment destination partly stems from how long it took to recover after the financial crisis and the euro crisis. Take the banking sector, for example. A good example of what was probably considered the most hated sector in the world. For a long time, as regulation kept increasing and interest rates were at zero, it was hard to get much return out of interest rates. And in fact, European banks appear to have been, over the past five years at least. Until recently, they were actually among the best-performing share groups, meaning that if you started looking from a low base, you got better returns than even US tech stocks. Now the situation might of course be a little different. You can't surge endlessly, but it's funny in a way. Is this structural change—following 10 to 15 years of zero-interest-rate lingering and low investments—leading us? But now we are perhaps even at the very beginning of another longer boom.

Yes, a truly massive change has taken place; indeed, the financial crisis and the euro crisis left ripples that lasted quite a long time. In a way, those, and then of course quite understandably. Regulators wanted to tighten regulation so that situations of this type wouldn't happen again. But for banks, of course, that meant very substantial investments in everything related to reporting and such, but also that balance sheets had to be strengthened, and through that, capital returns or return on equity figures naturally tended to drop. And then on top of that, interest rates were pushed to zero and even into negative territory, because it's pretty hard to charge depositors a fee. So in a way, they couldn't adapt to a situation where some companies back then were still asked to pay negative interest to the banks, but households won't accept that. It was a long road. But then now, perhaps a few. A major change has happened quite quickly after all, as trimming measures have been carried out and new revenues sought from elsewhere, like wealth management and so on; I was looking the other day at how, for example, Italy's UniCredit—it wasn't all that many years ago when its return on equity was around 4 percent, and now it is 20. Deutsche Bank had something similar too, not quite as big an improvement, but also reaching double digits, so there is a great deal of improvement.

Here in the Nordic countries, since our banks were in better shape than those in Central and Southern Europe, we perhaps didn't even realize how weak their condition had been in terms of numbers. And in that sense, if you look at how ROE, return on equity, has improved in just a few years, this share price rise is by no means plucked out of thin air, but is the pure consequence of that. And if we now assume—at least our stance is—that the interest rate environment is now normal, meaning it's no longer zero rates, but normal, which would perhaps mean that ECB rates hover in the roughly 2 to 3 percent range and we are in that type of environment, then these ROE figures are probably quite permanent for banks, and they might even improve slightly if we can grow the more profitable fee-based businesses further. So in that sense, it's good. And on the other hand, since quite a few bank mergers had to be done here—meaning weak banks, especially in Southern Europe, were merged into other, somewhat stronger banks—that has in its own way brought strength. And there was already. Was it a couple of years ago when there was a bit of instability among regional banks in the United States? In Europe, we didn't really see that, except for Credit Suisse, which was taken over by UBS at the time.

But people had been predicting that for years.

Well, yes, that was also just like: who was all that surprised by it? But otherwise, we coped quite well with it. If there hadn't been these regulatory tightenings, then the situation might perhaps have been weaker. But I do feel there are quite good prospects; perhaps one wouldn't bet on the banking sector being such a rocket ship anymore, but still. Valuations are still quite modest, and through that, it can still be interesting. That is naturally good, because it's a large sector.

And that is actually visible across Europe as a quick explanation and recap. And for the viewer, share pricing is fundamentally most affected by how fast companies grow their earnings. Well, on the other hand, how profitable they are, because the more profitable a company is, the more it can invest in growth, but at the same time also distribute money to its owners, since it achieves more good with fewer euros. Put very colloquially, the return on equity of the entire European stock market hovered around 10 to 13 for a long time after the financial crisis, whereas in America that figure itself has already risen to almost 20. And in a way, that partly explains why stocks in Europe look cheaper or trade at lower multiples. But the difference has perhaps narrowed a bit, and likely structurally so, as the rise of the banking sector explains this the most.

It has, yes, and of course one reason why. One reason why it has been so high in the United States. There is of course the high profitability of technology companies, but also the major tax cut that came already during Trump's first term, so we actually see that they jumped quite a bit at that point. In Europe, we probably can't make tax cuts of that type. Every country naturally has its own budgets and so on. Of course, corporate taxation has been lowered a bit almost everywhere here too, but at least.

Low taxes in Ireland.

There. That is true, there are some countries like that. But at least there is the difference that if you look at the U.S. budget deficit as well, it might be quite difficult there now to make massively huge cuts to taxation anymore, so that kind of jump won't come from there. So exactly, perhaps the difference will be a bit smaller in the future than it has been. And that should help also through traditional valuation multiples. So if Europe is somewhere around P/E 15 and the U.S. is P/E 20, they are quite far apart from each other after all, so maybe they can be a bit closer sometimes. And preferably, of course, in a way that Europe would go up a bit.

If we look at it both ways. Regarding interest rates just a bit, since you follow those for a living too, when you talked about that 2-3 level being normal, that is probably a nice level for banks, for example. And on the other hand, I must remind viewers again, as you said too, that often Finnish mortgage debtors talk about rising interest rates, and you see red faces in the audience. The rise in interest rates tells us that the economy is healthier and growing. It isn't. Instead, it's not a bad thing at all; rather, it means more jobs and more income and wages for people, which they then spend in the economy. Still, if we were to go completely over three, that probably wouldn't make people smile too much anymore. Or would it? It's probably not super scientific to define any kind of pain threshold where it actually moves.

Yeah, I think too that if we go over 3, then we will already start to see the economy beginning to slow down. So in that sense, even though the ECB probably feels right now that it makes sense to raise the rate to two and a half, then it might be that afterwards they will watch a bit how this economy goes. And of course, precisely when inflation pressures come because the economy is growing well, then you can raise the interest rate more readily. But if they come because we have that energy. Inflation brought by rising energy prices, then. Which in itself slows down economic growth, then maybe it's better to be a bit more cautious. But in my opinion, if you've been in the market for a little longer, you remember that even interest rates of around 3 percent were completely normal before the financial crisis. And it didn't stifle the economy in that way. Of course, we probably won't reach the exact same kind of growth figures in the future now, but. It's also a bit of a question of getting used to it; the worst kind of interest rate rise is when it happens like in 2022, very much, rapidly, and unexpectedly. Anyone's investment calculations will certainly need to be redone if the interest rate rises by 4 percent.

Inflation as a driver still.

Right, and furthermore, then. In a way they look completely different, so quite a few investments no longer look sensible at all.

How do you view the European economy if I set the stage here? Two narratives, in a way. One is that Europe always grows very slowly, even though it has accelerated a little now. And then we are always extremely vulnerable to crises. Like some German economic model that relied on cheap Russian gas, well lo and behold, it has been in complete trouble ever since the war in Ukraine started and the gas supply stopped, and most recently this Middle Eastern. You can probably call it a war, so that has had an impact. So in a way we are extremely vulnerable to energy crises since we don't have it of our own accord now. Except the Norwegians have a huge amount of energy. Europe is in a way very susceptible to shocks, one could perhaps put it that way. And then when there is no tech exposure, it feels like the best upside is always missing in options like that. But then on the other hand, when you think that vulnerable as Europe is to such things, the euro area has still grown at something like a one percent pace at the present time. On the other hand, is this a very resilient region? How do you view these interpretations?

Well, our biggest countries are pretty steady eddies, meaning in bad and in good, that is Germany, France, Britain. Growth is very modest. But then again, there are many regions after the pandemic. It has been seen that Southern Europe has reached a bit of new growth figures. So they were back in the early 2000s. They were those growth countries of Europe back then. I remember myself too, eagerly investing in Spanish banks and others back then. But then came these debt crisis times again. But now there is quite good growth there. And then here in our Nordics there is quite good growth. And then there is Ireland, which has attracted these international investments well, so it is a bit fragmented. That you have those three big ones that have a lot of challenges, very sluggish growth, and now politically very difficult times. But then there are many other countries where growth is a bit more fast-paced. Maybe, but Europe isn't. Europe as a whole. Will not become a rocket. So perhaps at the moment I would think that if I want to simplify, trend growth in Europe is 1 percent, in the United States it is 2 percent, and in emerging markets it is around 4 percent. So something like this. You can expect that sometimes we go a bit by half a percent in either direction, depending on whether it's an upswing or a downswing. But.

But still, if you think about this energy crisis that has come after the war in Ukraine, I would say that Europe has nevertheless coped surprisingly well. The sentiment was indeed quite depressing when the war broke out, and everyone nevertheless had it pretty much in the back of their minds. The events of 2022 were a bit like, here we go again, but at least for now it looks like we got off with much less damage. And GDP in Q2 was indeed above expectations. Those numbers just came out, and then the earnings season in Q2 was really good. Of course, if we look at listed companies, a lot of this good momentum is on the other hand due to the fact that over half of net sales come from somewhere other than Europe. So that helps, with the United States accounting for around 20 percent of European companies' net sales and emerging markets 30 percent, so you get a helping hand from there if needed. That ratio has changed dramatically if you look over the span of twenty years, so 20 years ago it was very Europe-driven. Where the net sales came from, but nowadays that growth comes from a lot elsewhere.

And the same thing applies. To the Helsinki stock exchange, that as far as large companies are concerned, it hardly reflects the Finnish economy at all. You have to look at small companies that are domestic-market driven, and the stock market otherwise too. The relationship to the economy is quite. It isn't very straightforward after all.

It isn't. Just for example China as well, that there has been in principle quite good growth for a long time, but the stock market hasn't done terribly well recently and so on, so one must always remember that companies are different from the entire broad economy. And then especially when we talk about these large tech companies, they are always very global and they stem more from technological development. That driver rather than where the headquarters happens to be located now, even ASML, it has absolutely nothing to do with the Dutch economy as to how it fares.

In turn, regulatory risk in Europe, and on the other hand in recent years people have talked about dismantling regulation instead of increasing it, but has anything terribly much been achieved on that front either? It feels like politicians always have very noble intentions. It depends a bit on how you look at it, but still nothing terribly much gets done. Isn't that very much? It becomes real work. A brake on these European investment prospects.

Well, I would say that this pessimism of yours is warranted. This time at least. So a couple of years ago, former central bank governor Mario Draghi came out with this major report, the topic of which was how. How to improve Europe's competitiveness. And one clear conclusion there was that there is way too much regulation and it must be dismantled. And there was also a really large number of different measures listed. These things should be done quite concretely. And then it happened. Typically it happens. Meaning the initial enthusiasm took off and some of them were done. But right now there was a kind of two-year update on how progress has been made here. Around 15 percent of these Draghi proposals have been fully implemented. About 25 percent to some extent. And then over half, well, virtually nothing has been done.

It certainly feels like this has once again been overshadowed by other urgent matters. The dismantling of regulation, and it is indeed a shame that then there is. Of course, there are also many politicians in Europe who like this regulation, and that's why it was sometimes called that we aren't dismantling regulation, we are just simplifying it. But it feels like has even that been done terribly much? Of course something has happened, but I feel like Draghi himself is also slightly disappointed, because I read around the end of August just about this new group that Draghi had assembled, which included economists and business leaders and others, and the goal there is perhaps to put a bit of momentum so that we could get a few more of these reforms moving now. So I have seen some estimates that it's kind of like when those Trump tariffs came for example, then there certainly was. Many estimated that this regulation is nevertheless a bigger brake on the European economy than these tariffs. For example, that they are very significant. And ask any Finnish company, especially a small company that wants to start exporting products to other European countries, how seamlessly these internal markets work, and you find that you unexpectedly have to fill out all kinds of paperwork and apply for various permits, even though these are supposed to be the internal markets. So if those internal markets could be made to function in a way that they really aren't like you get a permit in one country and then you can sell that product everywhere, that would be quite a big boost and bring a lot of potential for a small company. But it feels like some new packaging directive came out now too, and at least I read about some companies that said this now stops exports to some countries completely. So these are indeed a bit unfortunate things, that there has to be regulation to some extent. But the EU is a bit like this regulatory superpower that just keeps strengthening its position all the time.

Yep. Although on the other hand, regulation is a double-edged sword for the stock market too, that on the one hand it perhaps disadvantages small companies most of the time and on the other hand maybe small entrepreneurs who wouldn't be on the stock market. But on the other hand, large companies have a legion of legal staff to ponder them, and they are able to manage them. Perhaps it can in a way also stiffen competition, which benefits the big ones. And on the stock market, the large companies weigh the most.

True enough, that it certainly is so, that a large company has completely different resources then to respond to these and delve into them, which is then not good, because we nevertheless see that small companies are often the innovative and dynamic ones and so on. So we would need more of those smaller companies that start internationalizing and being bold and so on, so that regulation wouldn't hinder them. Of course, then perhaps in large companies people can be satisfied with continuing in the same old way as before. But but. From the perspective of macroeconomic growth, this is it.

Well then about that, when we talked earlier about the export success of European companies. And the Swedes succeed in everything really, but they are pretty good examples of how international they are. But one thing that seems to cause more and more friction and of which Europe's, especially the German automotive industry, is a good example. If you look at the share price performance of those companies, Chinese competition is intensifying. In addition to European companies, car firms first and foremost, losing market share in China as the Chinese start making things better, it is also visible on the world market that competition there is hardening. And of course export pressure comes here too, when the Chinese cannot afford to consume all the goodies they produce themselves. So do you see that it probably doesn't affect a high-tech company like ASML right away? But do you see that this will result in increasingly fierce competition for our large industrial sectors at a general level like this? Naturally, for each individual company it is a unique story.

Surely it is like this, that China definitely is. It is extremely good in many fields. And in a way, strategic planning like that has been done there for a long time. Meaning these targets are set and then resources are put into it. Funding is given to these new industries that they want to grow, and then on the other hand those companies are made to compete fiercely against each other, whereupon the best ones are really good and they then set out to conquer world markets. Just like the car sector for example, there is a zillion different car manufacturers there, but some of them are probably ones you won't be hearing from for very long. And then there are some that have now gained a foothold in Europe as well. And maybe then they will start manufacturing cars here too and so on. And all these robots and others. So they can revolutionize many traditional industries quite quickly too. So it is certainly a very serious threat to many.

But on the other hand, should some protectionist measures then be put in place in Europe or should one rather consider how this can be. How to position oneself then and how to benefit. On the other hand, one can perhaps also learn from this strategic planning of the Chinese, that you have to look far ahead. And then of course if you think about, you just mentioned these solar panels, if the Chinese hadn't come to world markets with these cheap panels, how much solar power would we have at present? And yet climate change is an even bigger problem, so if we can slow it down even a little bit now through these Chinese panels, which are nevertheless installed here and are then basically handled by European installers and maintenance workers and so on. So benefits come here as well, and likewise these electric cars, how many ordinary households can buy a Mercedes electric car? Probably not terribly many, as it surely costs 50 to 100 grand depending a bit on the model, but.

Then it's good.

Right. Those alternatives exist too, but if a reasonably good Chinese option comes along that costs 20 grand, that is probably quite an incentive for many to switch to electric driving. But China is. You always just marvel at it, and I feel like for a long time many people have had a very outdated image of China, thinking that only more copying and things like that come from there, and Europe has perhaps looked down on it a bit. Until now the truth has emerged that they are actually really good in many different fields. And then when the domestic market there isn't pulling its weight, as you said, then that stuff gets pushed elsewhere. So of course one has to hope that they would rather look at these other emerging markets and try to capture more market share there instead.

The size of the markets is sufficient, but there are quite a lot of smaller consumer markets there compared to Europe.

Exactly. But then on the other hand, we do have a lot of what these European strong brands are. For example, in many consumer products and also industrial products. So the brand is still something that you don't get overnight.

German car companies used to be admired in China just the same. But that is no longer enough.

It certainly hasn't been enough there anymore. Yeah. So maybe it is that there are sufficiently good alternatives there. Because I suppose Louis Vuitton handbags are still basically seen as better there than Chinese ones.

Well, at least those. And of course, in the Chinese model as well, even though it might look efficient, there is also an enormous amount of inefficiency in that it kind of transfers forced savings from households so that their money is allocated to industry. And that industry wastes it completely senselessly. You don't need to care if not everything goes that well, so that's not it either. It is not a free model; they are paying a pretty hefty bill for it themselves all the time.

Right, exactly the thing: does it bring prosperity to its citizens? Not necessarily, but. But it does bring a difficult situation for many industrial companies.

And how do you see Europe's long-term picture, if you think about it? Of course, it was also mentioned that Europe has many export companies. It is not so tied to economic growth, but if you think in the long run, look at Europe's birth rates, for instance, there aren't exactly a huge number of new people arriving here. What then, if you consider how economic growth is generated once again? I am simplifying, but how productive is a pair of hands, and how many of those pairs of hands are there? If that number of pairs of hands, the number of working-age people, seems to have started... It has been decreasing in Finland for quite a long time, in Germany for a long time. It's decreasing in more and more countries, so. If there is no economic growth, it is a bit harder for listed companies to grow either. So is there such a future here, or is this an area that will turn into an open-air museum and a nursing home in 50 years?

Well, that is of course a very relevant question, as population growth has naturally been very slow here for quite a long time. And then at some point, of course, people talked more positively about immigration, that through it we can increase the size of the workforce. Well, now it feels again like recent political winds make that quite difficult, and on the other hand, unemployment is also quite high in some countries. But of course, the rise in productivity. Is AI then the game changer? In whether we can then drive productivity up so much through it that the economy grows after all, despite the workforce not increasing? It's difficult. Hard to say at this stage yet, we are at such an early point, but I do think we are in such a low-growth environment. But maybe both the horror stories and the extremely rosy pictures will fail to materialize. But birth rates probably won't turn upward anytime soon, it feels like it's permanent. Quite slow indeed. So a bit like in many other places. It is in the United States too. Population has grown for a long time, but there too, through Trump's anti-immigration measures, population growth will probably start to slow down to some extent. However, there has clearly been more growth there.

Right, and of course Europe is by no means alone, because I remember the total fertility rate in India just dropped to two as well, so. But of course they have such a large population base that the impact comes so far in the future that the stock market doesn't care about it now. But it is telling that we are not the only region that is aging.

By no means, it's pretty much just some African countries where very strong population growth is still seen, but on the other hand, they have also seen extremely deep youth unemployment for a very long time. So in a way, economists perhaps overemphasize that there has to be population growth, at least from my own perspective having followed emerging markets for a long time. That it certainly brings challenges as well. There are studies like this. That if there are a lot of unemployed young men, then there is a certain kind of unrest risk.

That's a good kind of unrest. Yep. Yeah, yeah. That brings to mind.

Yeah, yeah, it is indeed the case that the issue specifically concerns men, and then you get dissatisfaction, alienation, and so on, and then various social challenges can arise, which perhaps we've seen in Sweden too, partly as a result.

Right, that's very true otherwise too. Perhaps we can return here to which sectors are interesting in Europe, what kind of investment destination Europe is, since everything is growing and moving rather slowly. Well, of course there are those political risks that you talked about earlier, but that's true. When we were also talking about the speed of economic growth, that China has grown fast, but stock prices themselves have been moving sideways for almost twenty years now and have crashed, and Europe is in that sense perhaps pleasantly boring after all. Assuming that some euro crisis, the third or fourth version, doesn't blow everything up, but less of that sort of thing happens in one's mind.

So in that sense, I think that since we've had this huge boom on the technology side, many investors have also become a bit blinded. The idea of what normal earnings growth is—that in the long run it's around 5 to 10 percent per year. That is quite good if a company achieves that kind of earnings growth. But now we are a bit at the point where it has to be at least 50, preferably 70 or 100. In a way, Europe won't measure up if compared to those types of companies, or Korea probably has 300 percent earnings growth this year, but then that 5 to 10 percent is something that is quite stable over time, without such booms and busts. So one just has to remember precisely this, that we are in such different industries, and then on the other hand, perhaps predictability is also there over the long term.

If you think about what kind of companies, for instance, I want to own in my own retirement portfolio, ones that are still going strong here 20 years from now and so on, I think Europe has many good companies like that. If you think about profitable Swiss pharmaceutical companies or these traditional industrial companies. I certainly think those are ones you can believe in. Right now there are many that I have followed in one way or another for over 20 years, so there's a lot of expertise there. They do renew themselves as well, so maybe I'm jumping from one topic to another again. But if you think about these pharmaceutical companies too, AI could well be a pretty big opportunity for them as well. So it has been estimated that when AI is brought into this drug development process, it could really significantly speed up the discovery of new drug candidates and ultimately cut the time it takes for a drug to reach the market by about half. And when they have patents that are expiring, in a way, every additional year that the drug is on the market has a tremendous financial significance, so there are definitely interesting renewal opportunities like this in traditional sectors too. And then why not in industry as well. France has this AI company Mistral, which of course is still quite small compared to OpenAI and those, but they are doing quite a lot for industry, specifically. As I understand it, these kinds of applications, so it might be quite interesting then that they emerge in these traditional industries. So perhaps some unexpected boosts can come from there too. Even though right now one might not yet think that we are following this traditional earnings growth model. But but. At least this kind of renewal brings good security. Then against Chinese competition or other competition.

I thought this was a good point you made about how since industries in Europe are perhaps a bit more traditional, if you practice stockpicking, if you were to hunt among the top 50 largest European companies, you could probably assume with high probability that the list will look fairly similar twenty years from now. Someone might have risen and someone dropped. Perhaps some merged together again. Whereas if you look at American stock indexes, there is so much technology, it would be surprising if some of those same top 50 largest companies didn't drop out, because in technology the change is so much more frequent. That doesn't matter if you practice index investing, because the winners will always be there in the index. But for a stockpicker, I would at least guess that if you picked the top 50 US tech firms now, part of that crowd would inevitably drop out twenty years from now. It would be a miracle if they didn't fall behind in the competition, or messed something up.

That's right. If you recall the dot-com boom around the turn of the millennium, back then a company like Cisco was practically the number one stock. And then it vanished for a very long time. Sort of so that nobody really knew what happened there. Well, now they're raising their heads a bit again, but. That's how it is, on the technology side those companies change a lot. Such as Broadcoms and others. Who had heard of it five years ago? Roughly speaking. But then again, if we look at Europe, Louis Vuitton and companies of that type, for instance. They are always there, L'Oréals and then AstraZenecas and others. Pharmaceutical companies, so they have been there. So on the technology side, things indeed change very strongly.

Yeah, thanks hey Hertta for these comments. About Europe. So maybe a bit more boring, but can we also say more stable?

Yes, you can say that, and sometimes that stability is also quite worth considering.

That's the idea. And as Sampo's former group CEO said, boredom is a good thing. Boring is good. We'll end the interim report with these words this time, thanks and bye for this podcast. Thank you once again for listening to the episode, and check out the previous episodes on InderesTV too. Have a really nice start to the autumn, everyone! At this point.