Analysis: Investors spy value in cheap Finnish stocks after China and Russia pain

Metsa Board Oyj

29/11/2023 06:10

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      Finnish industrials premium at 14-year low
    

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      NATO membership has reduced Russia risk
    

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      OMX Helsinki 25 down 10% in 2023 vs 8% rally for STOXX 600
    

  
    By Danilo Masoni
       Nov 29 (Reuters) - Finland's beaten-down stock market
may offer value for investors next year, money managers say,
with a potential global economic recovery set to lift the
cyclical stocks that dominate the index and NATO membership
easing perceived Russia risks.
    Finnish stocks are Europe's biggest laggards this year, as
risks stemming from tensions with Russia and concerns over
China's stuttering recovery have hurt its exporters. In
addition, big funds have favoured global mega caps over smaller
firms, which make up a large portion of the Nordic country's
equity landscape.
    The top 25 stocks in Helsinki are worth a combined $150
billion. Europe's most valuable firm Novo Nordisk  NOVOb.CO ,
alone, is worth three times that. The OMX Helsinki 25  .OMXH25 
has lost 10% this year, versus the STOXX 600's  .STOXX  8%
rally.
    Tomas Hildebrandt, senior portfolio manager at Nordic fund
manager EVLI, sees Finnish stocks as cheaply valued and likely
to benefit from an economic recovery he expects could gain
traction in 2024.
    "I don't see any structural issues at the moment that would
really spin the global economy into a deeper recession. Hence, I
think that the bottom will be reached at some point," said
Hilderbrant, who is overweight Finland, but underweight Europe.
    "We might be early in our call, but with the outlook of a
shallow recession, markets will start to look for a cyclical
recovery sometime during next year".
    
    GLOBAL DOWNTURN
    Industrial stocks have suffered from a global manufacturing
downturn that started in 2022  XWPMIM=ECI . A recent Deutsche
Bank study, however, showed some leading indicators -- like
South Korean semiconductor exports, which rose in October for
the first time in 16 months -- are pointing upwards.
    A recovery should benefit other export-driven markets in
Europe, although Finnish equities look more of a bargain. They
suffered a harsher derating due to their greater exposure to
China and selling linked to concerns over tensions with Russia.
    In April, Finland joined NATO, ending seven decades of
military non-alignment and roughly doubling the length of the
border the organisation shares with Russia.
    "Some foreign investors have been selling Finnish stocks
after the Ukraine war started due to Russian proximity, but the
country risk has declined after Finland joined NATO," said
Hertta Alava, senior strategist at the country's top bank
Nordea.
    Elevator maker Kone  KNEBV.HE , Helsinki's biggest
industrial stock, sold its Russian assets in October, 20 months
after Russia invaded Ukraine. It has struggled because of its
large exposure to China's property sector.
    Kone's update to end-September saw orders falling less than
expected thanks to what CEO Henrik Ehrnrooth called a "fantastic
quarter" in China. Following a 14% slide this year, the stock is
10% cheaper than rivals Zurich-listed Schindler  SCHP.S  and
Otis  OTIS.N  in the U.S., having traded at a premium of around
the same size to both in the last 5 years, according to LSEG
data.   
    Other underperformers include cyclical material companies
such as forestry firms Metsa Board  METSB.HE  and Stora Enso
 STERV.HE , and stainless steelmaker Outokumpu  OUT1V.HE .     
    
    "A LOT IS PRICED IN"
    Finnish industrials  .dMIFI0IN00PUS  have commanded an
average premium of 28% over European peers  .MIEU0IN00PEU  in
the last decade. That gap has narrowed to a 14-year low of 6%,
LSEG data shows. 
    Nordea's Alava said this group had potential to outperform
Swedish and French industrials over the next two years, while
the broader Finnish market had stronger earnings upside.
    According to LSEG, OMX Helsinki 25 earnings are seen growing
12% in 2024, faster than the 6.7% rise seen for the STOXX, 
after falling 16% and 1.2% respectively this year.
    "Finnish stocks are attractively valued and a lot of bad
news is priced in," Alava said. 
    "If the European economy recovers in 2024 as I expect,
Finnish cyclical stocks should recover too... this could be a
good time for long-term investors to increase holdings".

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
OMX Helsinki 25 in 2023    https://tmsnrt.rs/47v9EkP
Finnish earnings forecasts    https://tmsnrt.rs/3T1nbfv
Finnish industrials valuation    https://tmsnrt.rs/47ydPwi
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 (Reporting by Danilo Masoni; Editing by Christina Fincher)
 ((Danilo.Masoni@TR.com; Reuters Messaging:
danilo.masoni.thomsonreuters.com@reuters.net))