Bloomberg News

Nordic Stocks Show Budget Discipline No Shelter From Crisis

January 26, 2012

(updates with today’s trading in eighth paragraph.)

Jan. 25 (Bloomberg) -- Nordic stocks are failing to distinguish themselves from the rest of Europe even though debt in the four countries is 35 percent lower and earnings are increasing faster.

The Stoxx Nordic 30 Index of shares in Norway, Sweden, Denmark and Finland is moving more in tandem with the Euro Stoxx 50 Index than at any time on record, except for the six months after the collapse of Lehman Brothers Holdings Inc. in 2008, according to data compiled by Bloomberg. The Scandinavian gauge tumbled 16 percent in 2011, compared with the Euro Stoxx 50’s 17 percent slide, even though Nordic profit growth is forecast to exceed the euro region for a third year in 2012, the data show.

“It is an extremely good opportunity for stock pickers because you can get cheap companies that have been irrationally down,” said Herbert Perus, who helps oversee about $36 billion as head of equities at Raiffeisen Capital Management in Vienna, including shares of Nokia Oyj and Telenor ASA. “We bought a lot of Scandinavian companies. They are extremely well-managed and extremely cheap.”

Concern one or more European countries may default is prompting investors to treat equities around Europe the same, according to Chris Sheldon at Dreyfus Corp. Nordic earnings may gain 13 percent and 6.2 percent in 2011 and 2012, compared with 3 percent and 4.2 percent for euro-area countries, analyst estimates compiled by Bloomberg show.

Overseas Revenue

More than $13 trillion was erased from the value of global equities from May 1 to Oct. 4 as concern grew that the euro- region debt crisis would harm the global economic recovery. Nordic companies get more than 78 percent of revenue from overseas, compared with 68 percent for those in the euro area, according to Morgan Stanley data.

While the biggest declines in the Euro Stoxx 50 last year were posted by UniCredit SpA, Italy’s biggest bank, and France’s Societe Generale SA, losses in the Stoxx Nordic 30 were led by Nokia, the Espoo, Finland-based maker of mobile phones. Standard & Poor’s downgraded nine euro-area nations on Jan. 13, leaving Germany as the region’s sole economy with a stable AAA rating.

“There hasn’t been any place to hide,” said Sheldon, who helps oversee $400 billion as chief investment officer for Dreyfus in New York. “The sovereign-debt crisis has only increased correlation among all markets.”

Ericsson Earnings

The Stoxx Nordic 30 gained 4.8 percent this year through yesterday, compared with a 5 percent advance in the Euro Stoxx 50. The Scandinavian gauge dropped 1.5 percent as of 11:50 a.m. in Stockholm today, led by Ericsson AB after the world’s largest maker of wireless networks reported quarterly profit that missed analyst estimates.

Correlation between the Nordic and the euro-region benchmarks climbed to 0.92 this month, according to Bloomberg data, the highest since equities worldwide rebounded from a 13- year low in March 2009. A reading of 1 shows two securities move in exact lockstep.

“It’s of no help to stocks that Nordic countries keep their own house in order when the economies are small and open and companies make their money elsewhere,” said Henrik Drusebjerg, a strategist at Nordea Bank AB in Copenhagen. “The link between fiscal policies and equities no longer works on a local scale.”

Sovereign Wealth Fund

Norway has a $570 billion sovereign wealth fund and will record a budget surplus of 14 percent of GDP this year, European Commission estimates show. Sweden, whose economy expanded at the fastest pace in 40 years last year, will also post surpluses through 2013. Finland’s deficit is forecast to hold below 1 percent over the next two years while Denmark will bring its shortfall back below the European Union’s 3 percent limit by 2013, from 4 percent in 2011.

In Greece and Ireland, spending will outpace collections by 8 percent and 10 percent, respectively, Commission estimates show. Spain forecast last month that the 2011 shortfall will be 8 percent of GDP instead of a previous 6 percent target.

The four Nordic nations had debt totaling 45 percent of their economies on average last year, while euro-region borrowing was more than 70 percent of GDP, data from the EU’s statistics office show. Western European companies on average generated 68 percent of revenue from overseas last year, Morgan Stanley data show. By comparison, the Nordic economy with the smallest level of exports, Denmark, got 78 percent, and Finnish companies produced 88 percent, the most of any developed market.

Finnish Losses

“The Nordic stock market is to a large extent a play on the global economy,” said Karl G. Hogtun, who manages a 500 million-euro ($634 million) fund of Nordic equities at DNB Asset Management AS in Oslo. “The same factors that pushed global stocks down also pushed Nordic equities lower.”

Finnish stocks tumbled the most of any Nordic market in 2011 as China’s growth slowed and manufacturing contracted for a second month to the lowest level since 2009. Stora Enso Oyj, Europe’s biggest papermaker, lost 40 percent as demand in some markets weakened. Nokia, the largest maker of mobile phones by volume, sank 51 percent as its global market share fell.

Sweden’s OMX Stockholm 30 Index lost 15 percent as truckmakers Scania AB and Volvo AB declined more than 35 percent. The OMX Copenhagen 20 Index slid 15 percent as Vestas Wind Systems A/S, the world’s biggest wind-turbine maker, cut margin and revenue forecasts and local lenders Amagerbanken A/S and Fjordbank Mors A/S collapsed. A 7 percent increase in the price of oil helped limit the annual drop in Norway’s OBX Index to 11 percent.

Declines Overdone

The declines in Scandinavian shares have been overdone and they are likely to rally this year, according to Kim Evjenth, a strategist at ABG Sundal Collier ASA in Oslo. The Stoxx Nordic 30 is trading for 11.8 times the estimated earnings of its companies, according to data compiled by Bloomberg. That’s 1.3 times the valuation of the Euro Stoxx 50, near the lowest ratio since January 2009, the data show.

“Nordic stocks are cheap enough now for people to buy them,” Evjenth said in an interview. “Nordic shares should trade 15 to 20 percent higher at the end of 2012.”

--Editors: Andrew Rummer, Chris Nagi

To contact the reporters on this story: Alexis Xydias in London at axydias@bloomberg.net; Peter Levring in Copenhagen at plevring1@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net


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