Nordic Stocks Offer Investment Opportunities

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The Nordic countries of Denmark, Finland, Norway and Sweden are somewhat insulated from the crises engulfing Europe. These countries are not member of the European Monetary Union (EMU) and hence do not have the Euro as their currency. Staying outside of the Eurozone the Nordics set their own economic policies according to their national priorities. These countries have many positive factors such as strong fiscal position, low to no public debts,low unemployment rates, stable currencies, etc. Hence investors looking to gain some exposure to European companies may want to consider adding some Nordic stocks.

The Nordic equity markets have traditionally performed better than other the markets in European countries.

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Source: Nordics dodge the debt crisis, Fidelity

Finland has the highest annual returns at over 9.0% among the Nordics. However currently Swedish and Norwegian economies are in better shape than the economies of Finland and Denmark.

From an investment perspective, it is wise to avoid Danish banks.A few regional banks have failed since the credit crisis and though the contagion did not spread major national banks, investors can avoid the sector for now. While the central banks of many countries reduced the interest rates to zero, Denmark went even further and set the interest rates to negative earlier this year. The public debt is low and the kroner has strengthened against the Euro this year.The economy is diversified
with drug, green technology, farm products and other industries. (Source: Denmark’s Subzero Rate Adventure, Bloomberg BusinessWeek)

The Norwegian economy is highly dependent on crude oil exports but the country has built a solid sovereign fund using oil revenues. Oil prices have recovered strongly in the past few months and is unlikely to collapse unless the global economy falls back into recession. Norway also has no debts.

The Swedish and Finnish economies are also in better shape than most European economies.The Swedish banking
sector has rebounded nicely since the financial crisis and is returning to pre-crisis levels.A recent journal article discussed about how the Swedish banking sector is benefiting from the flight of deposits from Eurozone countries.

Only a handful of Nordic stocks trade on the organized exchanges. Hence investing in stocks directly is a challenge and investors have to go to the OTC markets where many of the stocks are traded. For those who prefer the ETF route, the iShares MSCI Sweden Index(EWD), Global X Funds(NORW) , iShares MSCI Finland Capped Investable Market (EFNL) and iShares MSCI Denmark Capped Investable Market (EDEN) ETFs offer easier access to these markets.

Some of the Nordic stocks trading on the US markets are listed below:

1.Company: NOVO NORDISK A/S (NVO)
Current Dividend Yield: 1.59%
Sector: Health Technology
Country: Denmark

2.Company: STATOIL ASA (STO)
Current Dividend Yield: 4.14%
Sector: Energy Minerals
Country: Norway

3.Company: CARLSBERG A/S (CABGY)
Current Dividend Yield: 1.08%
Sector: Alcoholic Beverages
Country: Denmark

4.Company: DNB NOR ASA (DNHBY)
Current Dividend Yield: 2.83%
Sector: Banking
Country: Norway

5.Company: ELECTROLUX AB (ELUXY)
Current Dividend Yield: 3.86%
Sector: Consumer Durables
Country: Sweden

6.Company: FORTUM OYJ (FOJCY)
Current Dividend Yield: 7.13%
Sector: Utilities
Country: Finland

7.Company: SWEDISH MATCH AB (SWMAY)
Current Dividend Yield: 2.27%
Sector: Consumer Non-Durables
Country: Sweden

8.Company: NOKIAN TYRES OYJ (NKRKY)
Current Dividend Yield: 3.82%
Sector: Consumer Durables
Country: Finland

9.Company: SVENSKA HANDELSBANKEN AB (SVNLY)
Current Dividend Yield:
Sector: Banking
Country: Sweden

10.Company: SWEDBANK AB (SWDBY)
Current Dividend Yield: N/A
Sector: Banking
Country: Sweden

11.Company: PETROLEUM GEO-SERVICES ASA (PGSVY)
Current Dividend Yield: 1.12%
Sector: Oil Well Services & Equipment
Country: Norway

12.Company: SCANIA AB (SVKBY)
Current Dividend Yield: 3.92%
Sector: Producer Manufacturing
Country: Sweden

13.Company: STORA ENSO OYJ (SEOAY)
Current Dividend Yield: 6.22%
Sector: Process Industries
Country: Finland

14.Company: TELIASONERA AB (TLSNY)
Current Dividend Yield: 5.87%
Sector: Telecom
Country: Sweden

15.Company: YARA INTERNATIONAL ASA (YARIY)
Current Dividend Yield: 2.33%
Sector: Process Industries
Country: Norway

Note: Dividend yields note are as of Oct 1, 2012

Disclosure: Long SWDBY, FOJCY, EWD

The Current State of Global Equity Markets

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The S&P 500 Index fell by  37% in 2008 when the financial crisis hit the global equity markets. The index has yielded positive returns since with 26.46% in 2009, 15.06% in 2010 and 2.05% last year. The S&P 500 has shot up by 14.6 % so far this year.

In the years since the crisis, the real economy has not shown any significant improvement. For example, unemployment continues to be a major problem with about 12.5 million unemployed in August and the official unemployment rate remains stubborn at over 8%.  On the positive side of the equation, the number of bank failures declined to 92 in 2011 from 157 in 2010. This year only 43 banks failed year-to-date. The housing market has stabilized but will take years to reach pre-crisis levels. So the strong performance of the U.S. equity markets can be attributed mainly to liquidity due to the quantitative easing programs (QE1, QE2 and QE3) implemented by the Fed. Liquidity-driven markets tend to be highly volatile and can go high only as long as ample liquidity remains.

The following chart neatly illustrates  the current state of equity markets:

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Source: Heads I win, Tails You Lose, by Avery Shenfeld, Chief Economist & Managing Director, CIBC World Markets

Why Gasoline Prices in the U.S. Vary Wildly

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Gasoline prices at the pump tend to go up and down often in the U.S. Unlike other developed countries, the volatility of gas prices in the U.S. is high.

Brent crude closed at $112.39 on Friday and gasoline prices stood at an average of $3.79 per gallon nationwide.  From just under $3.50 per gallon last September the price has jumped to reach almost $4.00 now. In the same period, the price of crude oil has also increased. Since gas prices at the pump are tied to crude oil prices, as crude oil prices rise gas prices also rise. According to a research report by JP Morgan Asset Management, “the cumulative effect of a change in the price of crude oil in the price of gasoline at the pump is much larger in the U.S. than in other developed countries. Over the course of a year, about 80% of the original oil price shock is passed through to the pump price in the U.S., compared to 40% or less in the U.K., Germany and Japan.”

Click to enlarge Source: Inflation: In the eye of the beholder, JP Morgan Asset Management

Why do gasoline prices are so volatile compared to other countries?

The answer to the above question lies in taxes. It is no secret that the U.S. has the one lowest taxes on gasoline in the world. If taxes are higher like other countries, then most the price at the pump will be fixed thereby reducing high volatility.The above shows that U.S. gasoline taxes are below 20% of the purchase price. This is less than half of what consumers pay as taxes in the UK, Japan and Germany. Hence gasoline prices in the U.S. remain volatile than countries with higher gasoline taxes.

The Wall Street Journal published an article discussing the issue of gasoline taxes in this country. From the article “The Gas Tax Is Running Low. But What Should Replace It?“:

The gasoline tax is running on fumes.

For decades, the excise tax on gasoline and diesel fuel has been the main source of funds for building and maintaining the nation’s roadways. It has paid for most of the four million road miles currently in service.

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But now there is agreement across the political spectrum that the gas tax is broken and needs to be replaced, or at least overhauled. The problem is twofold: First, the tax has failed to keep up with the rising cost of highway construction and repair. And second, improved fuel economy and the rise of hybrid and electric vehicles means that more driving won’t be matched by higher gasoline sales, and that how much people pay for the roads won’t necessarily reflect how much they use them.

The gasoline taxes consumers pay at the pump is shared between the individual states and the Federal government. The Federal tax at 18.4 cents for gasoline and 24.4 cents for diesel has not changed since 1993, according to the journal article.  The chart above shows that the combined state and Federal taxes on gasoline at 50 cents or more per gallon is in effect in only some of the U.S. states. For a country that is heavily dependent on road transportation for the majority of the population policy makers have miserably failed  with regards to gasoline taxes. As in most other issues, consumers pay the price for this failure due to the constant volatility of gas prices at the pump.

Related ETFs:

United States Oil Fund (USO)
United States Gasoline Fund (UGA)

Disclosure: No Positions

Bank Director: America’s Top Banks for 2012 with Assests from $5 Billion to $50 Billion

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The Bank Director magazine published their annual Bank Performance Scorecard for 2012 in July. The following are the top 10 banks with assets from $5 Billion to $50 Billion:

[TABLE=1124]

Source: Going For Gold: 2012 Bank Performance Scorecard, Bank Director

To download the full list of 75 banks in the ranking click here.

The mean Non-Performing Assets (NPAs)/Loans & Other Real-Estate Owned (OREO) is 8.90% which is high. Cullen/Frost Bankers, Inc (CFR) and Bank of Hawaii (BOH) are high quality banks which offer consistent long-term returns to shareholders.

Disclosure: No Positions

Bank Director: America’s Top Banks for 2012 with Assets from $1 Billion to $5 Billion

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The Bank Director magazine published their annual Bank Performance Scorecard for 2012 in July. The following are the top 10 banks with assets from $1 Billion to $5 Billion:

[TABLE=1123]

Source: Going For Gold: 2012 Bank Performance Scorecard, Bank Director

To download the full list of 195 banks in the ranking click here.

The mean Non-Performing Assets (NPAs)/Loans & Other Real-Estate Owned (OREO) is 5.31%.

Disclosure: No Positions