Finland data “worrying” says Handelsbanken

Analysis of latest output data suggests Finland is suffering broad-based weaknesses in its economy, according to analysis from Handelsbanken, raising questions about near term performance of Finnish equity funds.

Industrial output contracted 5.7% year-on-year according to data to June from Statistics Finland. Steepest falls were reported for the electricity, gas, steam and air conditioning supply sectors, along with the electrical and electronics industry. Even the forest industry saw a decline, with output down 4.2% against a year ago.

Handelsbanken said that the weaknesses identified look “odd given that Germany manufacturing output has strengthened substantially since the beginning of the year.”

“Historically, Finnish output has been highly correlated with German production, but this correlation now seems to have broken down. One explanation is the divestment taking place in Nokia’s mobile phone plants, which is weighing down the output of electronics and electrical industry. However, the output of the more traditional metal sectors are trending down as well.”

“A peek into German industry and its sectors reveals another explanation. The strongholds of German industry this year have been automobiles, vehicles and car parts, pharmaceuticals and wood industry, all of which are more or less related to global consumption demand and the consumer. Finnish output is geared to the global investment cycle and the global industrial cycle, as Finland produces mainly investment goods and intermediate goods. Just by looking at Finnish industry trends, one can conclude that global investments have not recovered in a meaningful way. Weak global demand for investment goods and weakened industrial competitiveness since 2007 paint a rather gloomy picture of Finland’s near-term future.”

Data from Nordea Markets published previously points to other evidence of the country’s slowdown.

Finnish Customs data shows that the level of exports were down 6% and imports down 12% in June compared to the same period a year ago. And while the country maintained a trade surplus of €260m for the month, this was because domestic recession has weakened imports, rather than being a sign of improvement, Nordea Markets added.

Looking at data for SEB’s Finland domiciled Finnish equity funds reinforces the picture of challenge.

The SEB Finland Small Cap A and B funds are down 3.4% over three months, and have returned just 0.5% over six months to 8 August. Over three years these small cap funds have lost 11.5%, but gained 15.3% over five years.

The SEB Finlandia A and B funds are down 1.4% over three months, and are up 4% over six months. Over three years they are up 0.9%, and over five years up 13.6%, according to figures published by SEB online.

Reviewing broader funds performance data from FE, it points to some 1,350 funds with some exposure to Finnish equities.

Of these, some nine funds have exposure greater than 50% to the asset class, although there is some diversity in performances.

For example, over three months, the Odin Finland fund is up 4.42%, but the Evli Finland Select is down 2.93%.

Over three years it is the Evli Finnish Small Cap that has performed best, with a 20.08% return to 8 August. Odin Finland did relatively well over this period compared with this group of funds, returning 11.26%.

Generally, however, the uncertainty suggested by the analysis of macroeconomic indicators in the near term seems to be reflected in the performances of these Finnish equity funds.

 Fund Asset % Finnish Equities
iShares – MSCI Finland Capped Investable Market Index – Jan 12 (0QTN) 100
Danske Inv – Finland High Dividend – Sep 03 (GNO7) 100
Evli – Finland Select – Jan 02 (R814) 99.2
Evli – Finnish Small Cap – Mar 10 (IMH6) 96.39
Skandia – Odin Finland – Apr 95 (S387) 86.25
Odin – Finland – Jan 07 (O040) 86.25
Danske Inv – Finnish Equity – Oct 87 (GWR8) 84.69
FIM – Fenno – Aug 98 (A9H1) 84
Danske Inv – Arvo Finland Value – Oct 05 (GWT3) 78.07
Source: FE  

 

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