Scandinavian stock markets were dominated by the mobile telephone giants until their recent demise, ...
Scandinavian stock markets were dominated by the mobile telephone giants until their recent demise, according to Jeremy Knight, European fund manager at Legg Mason.
He says Finland's Nokia used to be the largest stock in the FTSE World Europe ex-UK index but has now dropped to being the fifth largest.
Ericsson is similarly important to the Swedish economy. It was recently found to make up 15% of the country's exports, says Knight. But the stock continues to perform poorly, falling 30% in August and Knight does not see it turning around in the near term.
Companies which service the mobile phone industry are also in a poor position, says William Davies, head of Europe ex-UK at Threadneedle Investments. He cites companies that are directly involved in the production of the phones, such as Perlos, as being particularly vulnerable.
Perlos makes plastic covers for phones but even those that are less involved, such as IT consultants Tietoenator, have also been losing significant business, adds Davies.
Cyclical industries such as paper producers have been performing better. Davies says that the Swedish-Finnish company Stora Enso and UPM Kymmene are doing well because of strong demand.
Other industries based on natural resources are also doing well in Scandinavia, says Knight. He adds that Denmark's wind turbine producers Vestas and NEG Micon are at the forefront of this fast growing industry.
He says that the industry as a whole is growing at 10%-12% a year, which is particularly impressive in the current economic climate.
Knight says he is largely ignoring Norway because of the poor record on shareholder value there.
He gives the example of the takeover of the Norwegian insurance company, Storbrand, where the Finnish insurance company, Sampo's bid was held up by rumours of a lower bid from the Norwegian bank DNB Holdings.
Knight says that the purpose of these rumours was to put a spoke in the wheel of the proposed takeover.
The shareholders needed to vote 90% in favour for the merger to go through. Knight says that this typifies the Norwegian desire to keep as much as possible in Norwegian hands. He says that this kind of behaviour discourages investors.
Knight does have one holding in Norway. He says that Telenor, the part private state telecom operator, is a good defensive play and continues to perform solidly. Another company that Knight is looking closely at is Tomra Systems.
This firm, which produces reverse spending machines that pays consumers for recycled material, has fallen back in price and now represents reasonable value. Its future prospects depend on recycling legislation Knight notes, however, it is in a good position because it has a virtual world monopoly.
Davies says the engineering sector will have strong potential when the world economy picks up, and that Atlas Copco, which makes compressors for the construction industry and rents out equipment in the US market, could do well next year, although its recent good performance is built into the price.
• Natural resources performing well.
• Engineers should benefit from recovery.
• Defensive stocks holding up well.
• Mobile telephone industry suffering.
• Connected industries being dragged down.
• Norway hurt by lack of confidence.
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