Iceland: wiser, safer and with an ESG twist. Alas, still pricey

This island country in the North Atlantic Ocean has a highly developed economy, resembling the other Nordic economies. Its population of some 370,000 has a very entrepreneurial spirit and a stable government, consisting of parties from both sides of the spectrum. The country has access to the Single Market of the EU, due to its membership in the EFTA, and is a member of the UN, NATO, the Council of Europe and the OECD. The economy has rebounded, following the COVID-19 pandemic; and, while Russia’s invasion of Ukraine poses a headwind, the recovery is likely continue, in our view, albeit at a slower pace. In this report, we have identified four major sectors of Iceland’s economy: banking, tourism, fisheries and aluminum smelting, which uses Iceland’s green energy capacity. Within each of the aforementioned industries, we have identified companies that are listed on the local stock market and that may be of interest to investors. Iceland’s equities have performed generally better than the other stock markets in the Nordic regions and those under our coverage. In the ytd, the local benchmark has returned 7%, vs. the -2% peer average; and, in the past 10 years, the index gained 480%, vs. the peer average of 179%. This is also reflected in the valuations of the local equities, which seem to be rather expensive, on average, currently, vs. the Nordics, as well as the markets under our coverage. Despite this, we believe that multiple opportunities may be found in Iceland; especially now, as the capital controls have been lifted in their entirety.