"It was a good year. Companies made record profits. Looking at this year, companies will probably be unable to maintain these profits due to rising labor costs and inflation," Marius Ignotas, the head of equity sales for Lithuania at Swedbank, said at a news conference on Thursday.
Dividends are likely to fall as well, he said.
However, Ignotas said that shares are still cheap and have room to rise in price. Despite a negative impact from eurozone problems, the Baltic countries look attractive to institutional investors.
"There is interest on their side. Perhaps we can't absorb the amount of money that funds would want to invest," he said.
However, the general trend is that investors' money is pulling out of the debt-ridden Europe, the analyst said.
Profit forecasts in Europe, unlike in the United States, most often fall below expectations. Investors see that they can buy shares in similar companies at the same price in other markets, such as Asia, and they do so, he says.
"In Europe, the situation is much more complicated. No bottom is in sight. Unemployment keeps rising. The downturn is quite obvious and we forecast a GDP contraction (in the euro zone), Ignotas said.
The European economic engine Germany will hardly be able to pull the whole European economy, the analyst says.
Outside Europe, the mood is better, with all types of financial assets rising in the world in 2012 and US stock markets at their historical highs, he says.
