The traditional sectors of the Scandinavian region, such as forestry, shipping and steel, are now be...
The traditional sectors of the Scandinavian region, such as forestry, shipping and steel, are now being eclipsed by small cap tech stocks.
James Anderson, director, international equities at Deutsche Asset Management says: "Historically there was a lot of family interest in these large, traditional companies but now they have fallen off most people's radar screens."
Now much of the region is focused on technology, he says. There are a lot of technology related companies originating in Sweden and Finland, the most of which are small caps. This reflects a very entrepreneurial approach to business in the region, Anderson believes. Katrina Jack, investment manager, Europe at Baillie Gifford says: "We tend to find Scandinavian companies attractive, particularly in technology. They offer growth and a leading market position."
Baillie Gifford has holdings in Atlas Copco, a Swedish engineering company and Tomra, a Norwegian company that produces a type of vending machine.
Guillaume Rambourg, fund manager, European equities at Gartmore says: "Scandinavia is a bit of a European Silicon Valley but there have been a lot of profit warnings recently, such as from Tieto, a Finnish technology company and Framsad, a Swedish company, whose stock has gone down 85% since March."
The financials sector is undergoing a process of consolidation at the moment, with ongoing mergers between banks and insurance companies. Insurance company Skandia, which is especially successful in unit linked policies and mutual funds, has distinguished itself as a dominant large cap financial stock in the region, says Anderson.
The region is dominated by a few big stocks, such as Nokia, which commands between 75 to 80% of the Finnish index and Ericsson, which takes up around 40% of the Swedish market.
Anderson says: "It is astonishing that these two giants in the mobile telecom sector come from two small countries, which never had any protective allies. It may be that this influenced the business culture.
"To grow, the companies had to be very competitive, which is what they did."
Nokia has a global market share of around 32% in handsets. Ericsson is somewhat overshadowed by Nokia, says Anderson, noting its product development has not been as successful as Nokia.
Rambourg points out that these two stocks have not done so well recently. They were the darlings of the stock market in 1997 and 1998 but this year has been more of a mixed picture.
He says: "Nokia is one of the engines of the European market, it dominates the handset business worldwide, benefiting from good economies of scale, research and development and a good segmentation of the market. It was the place to be until March when it suffered from the technology downturn."
Gartmore is marginally overweight Ericsson having recently bought back some of the stock. On the handset side of the business Rambourg believes the company may team up with another company, such as Motorola, which would be positive for Ericsson.
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