Pension institution asset managers in Finland have had their fair share of problems over the year, with the domestic market providing a particularly bumpy ride. Nokia led the Finnish market’s rise in the last few years, until the whole sector fell dramatically this spring.
On 19 October, hope came in the form of Nokia’s surprisingly healthy third quarter results which saw its shares soar by 22%. This sudden announcement by Nokia was apparently designed to ease concerns among investors, though it might have had something to do with its arch rival Ericsson’s announcement of less impressive third quarter results the day after the new Nokia date. Following this, other technology companies, many of them suppliers of Nokia, also announced their results early.
This kind of situation can create new problems for pension funds, as the reaction to such events has to be quick. Asset managers were caught off-guard by the timing of Nokia’s announcement.
Due to the decline of technology shares earlier in the year, many Finnish pension insurance companies sold large chunks of their domestic IT and telecommunications stock. Companies such as Sonera, TietoEnator, JOT, Novo as well as Nokia have been under the cosh; a trend, which is also reflected in the investment by fund managers. Ilmarinen and Varma-Sampo, both pension insurance companies, have sold roughly half of their shares in Nokia, worth a grand total of about e1bn, in the first nine months of this year. Nokia, however, is one the few telecommunication companies whose shares have slightly increased in value since the beginning of the year.
Finnish pension investment has been gearing towards Euroland and the US markets for quite some time, but the decline in the domestic stock market since March, together with the current volatility provides a yet greater incentive for a wider allocation of assets. The relatively small and
Nokia-driven market has followed
the reviving technology shares,
reviving the appeal of domestic investment.
Investment into the Finnish market by local fund managers has only risen to a little over FIM20bn from around FIM15bn in 1997. Meanwhile, the Helsinki Exchange Index (HEX-index) has roughly quadrupled in volume. Many fund managers are facing problems, as most clients have been totally passive in the third quarter of this year. According to the HEX monthly report, total assets in funds fell from FIM87.9bn in August to FIM87.4bn in September.
However well the Finnish market does, the need for global asset allocation is necessary to counter the risks of relying on a one-share market.