Phones and forests lift share prices
Continuing his look at stock markets around the world, Liam Robb sees opportunities in Finland and France
Wednesday 29 January 1997
Although informal securities trading has taken place in since the 1880s, the Helsinki Stock Exchange was not founded until 1912.
The boom arrived in the 1980s when GDP expanded at 4 per cent year, but then departed abruptly in 1990 with the collapse of the former Soviet Union, which accounted for nearly 30 per cent of Finnish exports.
Only now is the country beginning to emerge from its worst recession in 60 years - and it has been quick to make up for lost time. Over the past 12 months, the 90 listed stocks have shown returns approaching 30 per cent, much of the outperformance attributable to the revival in the fortunes of the telecoms company, Nokia, which accounts for 35 per cent of the market's capitalisation.
Although inflation, at 2 per cent, is under control, 20 per cent of the five million population are unemployed - the highest level in Western Europe. Accordingly, the government has run up an unacceptably large debt. However, export and manufacturing output is increasing (forestry accounts for 50 per cent of exports) and the floating of the currency - the markka - has improved corporate competitiveness.
Aside from Nokia, Philip Mottram, head of the European desk at Abtrust, has high hopes for the cyclical stocks, particularly retailers such as Amer, the sports goods company which has bought the Wilson and McGregor golf club brand names. Enso, one of the largest paper pulp producers in the world, and Sampo, the insurance company, which should benefit from the Europe-wide move towards privately funded schemes, are also on the buy-list.
"The whole market is trading at only about 12 times earnings - relatively cheap by European standards," he says.
It has been a strange year for French equities. The main index - the CAC 40 - struggled for breath against a tide of dismal corporate results in the first half and then, despite the gloomy economic data, rallied strongly in the second. Indeed only last week the index reached an all- time high.
The economic picture, however, is bleak. Despite a recent cut, domestic interest rates remain relatively high, investment is low, unemployment is 13 per cent and the ensuing lack of consumer spending has done nothing to raise investor confidence; GDP growth for past year was a miserly 1 per cent.
Proposals for the 1997 budget are based on the need to reduce public expenditure and to meet the convergence criteria for monetary union.
As in Germany, the French stock market has traditionally been starved of long-term domestic capital, the population preferring the equivalent of deposit accounts.
Why, then, has the market returned something approaching 25 per cent over the past 12 months?
"Equity markets tend to discount what's going to happen in the future and people are buying the 1997 story," explains Brian Allworthy, European strategist for Merrill Lynch. "We just need to await the earnings results later in the year to see whether their valuations have been justified."
This "story" has much to do with the advent of private pension funds and the recent decision by the National Assembly to prevent such funds from investing more than 65 per cent of their money in fixed-interest instruments.
There are 701 domestic and 194 foreign companies listed on the Paris Bourse. Elf Aquitaine and Total, the petroleum companies, Carrefour, the grocery retailer, and the cosmetics giant L'Oreal are among the largest.
Merrill Lynch is particularly bullish on growth stocks such as Carrefour and the financials - banks such as Paribas and Banque Nationale de Paris.
Michelin, the tyre manufacturer, and Canal Plus, the television company, should also outperform. Because of the "save, don't spend" mentality, cyclical stocks like Renault and Peugeot, which rely on retail demand, are to be avoided.
The most important story for 1977, however, will be the privatisation in April of a 40 per cent stake in France Telecom, which should raise pounds 3bnn
Performance statistics: Datastream.
Most European sector unit and investment trusts have exposure to (3 per cent is the benchmark, although Abtrust's European unit trust currently has a larger weighting). France-specific funds include Invesco's French Growth Fund and the Paribas French investment trust.
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