Northern countries share many common features. Among others they are among the highest GDP per inhabitants in the world. They also have reformed their welfare states and reduced their public debt. Now, they are heavily depending on their big neighbours, whether it’s the US for Canada or the EU for the Scandinavian. But all in all, with the EU trade picking up, this is a good news.
Europe, for many investors, is Germany, France or the Netherlands. But Finland or Denmark? These are just blank spaces on the map for many investors. This is a mistake, as shown by a quick glance at the core data of the countries, because most of them have found a lucrative niche in the global economic structure via an unusual combination of state and economy. It pays off.
Take the example of Denmark, Germany’s direct northern neighbour. Its latest figures show that the economy rose more strongly than expected in the first quarter of 2017. And the second quarter also looks promising. For example, exports increased again in May. And in June, the business climate index rose to the highest it has been for three years. The economy there is often sketched as a welfare state with fairer redistribution. Admittedly, in Denmark the economy doesn’t entirely shine. An ageing population and high debts burden the budget, for example. However, these are medium-term challenges. And so far, the country has successfully faced challenges with Nordic stoicism.
Even further north, the North is shining, at least in part. With a mixture of high-tech capitalism and a welfare system, Sweden has achieved high standards of living. Unlike Denmark, they are not in the Eurozone. Nevertheless, they are closely interlinked with other countries via foreign trade. Wood, hydropower and even iron ore are coveted goods in export. Similar to Denmark, Sweden has also had to struggle in the recent past: in 2008, the country slipped into recession. Only in 2010 did things rise once again; high raw material exports and a strengthened banking sector brought the country back on course for recovery. In June of this year, for example, the purchasing manager index was once again above the 50-point level, indicating a good atmosphere. Studies of consumer confidence also pointed in the same direction. From the darkness of frozen Scandinavian nights, only the record level of household debt is currently being proclaimed.
Valuations for the Northern Lights have actually lagged behind the general world. But there’s now a good chance for them to catch up, with that energy, with specialist commodities like timber, and also with manufacturing, again in specialist areas like pharma.
The Scandinavian view of economy is even more apparent in Norway. There, a powerful private economy co-operates with a broad-shouldered state, which has put in place a resilient social security network. The money for this is supplied in part by one of the country’s top export successes – Norway is rich in raw materials. As an example, oil accounts for 20 per cent of the country’s exports, making Norway the world’s seventh-largest oil exporter. It is even in third place in terms of gas exports. The Norwegians transfer portions of this prosperity into a state fund, the largest in the world at around 860 billion euros. Among other things, it will help prepare the country for the time when raw materials play a lesser role. On the whole, the Norwegians are doing well with this model. Between 2004 and 2007, economic output rose steadily, before slowing down in 2008 and falling back in 2009. But as early as 2010, the country was back in the black.
The fourth of the Nordic cornerstones is Finland. The country has a per capita economic output similar to that of Austria, Belgium, the Netherlands or Sweden. Exports account for one third of this economic output. Raw materials such as wood and metals find their way into the world, but also telecommunication and electronic goods such as mobile phones. With this combination, Finland has been one of the fastest growing countries in the European Union. Its banks, for example, were able to circumnavigate the most violent turbulence of the financial crisis. It was not possible to completely separate from the situation, so in 2009 the economy moved into rough waters. Since then, however, the economy is again showing signs of strength; the good first quarter is likely to be followed by a good second quarter. Consumer confidence is robust, as is the demand from abroad for Finnish goods. For example, exports showed double-digit growth in May. The only downside: unemployment has risen somewhat since the beginning of the year, and the countrywide salary freeze has made the atmosphere somewhat cool – but only a little.
Canada somewhat brings to mind the USA, with its prosperity and economic system. Since the end of the Second World War, the country has been moving upward. And when the Free Trade Agreement with the USA was concluded in 1989, followed by the broader free trade agreement NAFTA in 1994, trade and economic integration with the USA continued to grow. After all, three quarters of Canadian exports flow to its southern neighbour. This includes uranium, oil and gas. Yet Canada also offers highly qualified workers. Together with the wealth of raw materials, this combination led to sustained solid economic growth between 1993 and 2007, which was slowed down only by the global economic crisis. Unlike many other countries, however, Canada was able to rely on its banks, which are some of the most capitalised in the world thanks to conservative business practices. Not a bad combination.
All in all, this means that from Werthstein’s point of view, the northern countries are moving out from the shadows of the other countries of investment. With a somewhat different economic model – a different approach to society and state. For this reason, they are a real Zeitgeist investment.
The economic music of Europe plays in ‘Germany & Co’? The loudest, certainly. Quieter tones emanate from the northern countries like Denmark or Finland. But they are no less melodious in the ears of investors. This means that shares from these countries are a resonant addition to portfolios.
For a long time, Scandinavia was quasi socialist: state-run economies, high taxes, economic inflexibility. But they’ve learned from experience. In Sweden, especially, Pippi Longstocking land, they’ve realised that a market economy does have its attractions, and they’ve also taken a major step forward in digitisation. So Sweden can no longer be seen as a byword for inflexibility.