Growth Prospects for Baltic Financial Markets in 2025 Despite the Challenges

In 2024, Baltic financial markets continued to demonstrate their growth potential despite global and regional challenges, as well as geopolitical and economic pressures. Although the number of IPOs in 2024 was lower compared to previous years, two new companies have been successfully listed on the Riga Stock Exchange – one of them being Latvia’s largest IPO in recent years, Eleving Group, which raised EUR 29 million – confirming the resilience of the Baltic market.

The bond market set new records on Baltic exchanges in 2024, with 105 issuances (a 14% increase in the number of transactions and a 56% rise in financing compared to 2023), highlighting growing investor interest in safer financial instruments.

This demonstrates the ability of the Baltic region to adapt to changing conditions and attract capital,

emphasizes Voldemārs Strupka, investment advisor at Signet Bank.

However, the region still faces fundamental challenges – low liquidity and a relatively small investor base. Nasdaq Baltic’s daily turnover averages €2-3 million, significantly lagging behind the markets of developed countries. Investor attraction and low credit ratings are the main obstacles that will hinder market growth in the upcoming years.

Nevertheless, the high valuations and structural issues in the U.S. stock market, combined with political crises in Europe’s leading economies and the recent efforts of market participants to revive it, give hope that the local financial market will outperform its U.S. and European counterparts and deliver better results than in 2024.

The geopolitical situation undoubtedly complicates the attraction of foreign investors, which is crucial for developing the capital market in the region, as the local market cannot provide sufficient capital for rapid growth. Moreover, seeing the significant performance gap between Baltic and global major indices, investors often conclude that if the market is stagnating, it is either not worth participating in, or it demands a higher risk premium.

An additional challenge is the low credit ratings of the Baltic states, which reduce the region’s attractiveness in the eyes of investors. Furthermore, the delisting of Latvijas Gāze in 2024 negatively affected the Riga Stock Exchange index, reducing it by over 40% in less than two weeks.

Despite these challenges, the forecasted further reductions in euro interest rates, normalization of inflation, and a GDP growth of 2–3% in all three Baltic states in 2025 will create a favorable investment environment.

But it must be remembered that the market does not always move in line with the economy. Although the Baltic markets are currently classified as “Frontier Markets”, the region’s development and efforts by local market participants foster a more positive outlook,

explains V. Strupka.

The resilience of the Baltic financial market, despite geopolitical and economic challenges, highlights the region’s potential. While several constraints remain, including low liquidity and difficulties in attracting investors, forecasts for 2025 offer hope for further growth and a more stable market environment.