* Nordic markets lure investors weary of euro exposure
* Denmark only market where profit forecasts are up
* Sweden peppered with buying opportunities -fund managers
* Short bets take aim at some Nordic stocks after Q2
* Turnaround, restructuring plays attractive
By Francesco Canepa
LONDON, July 15 Overlooked stocks in the Nordic
region are attracting increased attention from investors seeking
to escape the stretched valuations and uneven growth of the
While investors are faced with market peaks in the currency
bloc, though economic performance remains muted and patchy,
Nordic markets are still trading below historical premiums
despite solid public finances and a robust showing by companies
- including strong monthly sales on Tuesday from Swedish fashion
firm Hennes & Mauritz.
Danish stocks have outpaced all European peers this year as
investors pile into the only market where profit expectations
are rising, thanks to a recovery in the banking sector and
turnaround stories such as turbine maker Vestas Wind.
Sweden is also peppered with overlooked restructuring plays
such as Husqvarna, a maker of lawnmowers and
chainsaws, or lock-maker Assa Abloy, which offers
exposure to the United States and Europe at an attractive
valuation, according to some fund managers.
"It's about trying to find those stocks that have been
overlooked," said Waverton Investment Management's Katrina
Norris, who has invested a quarter of her European equity fund
Nordic stocks trade at a smaller valuation premium to Europe
than their historical average. The MSCI Nordic index of
Scandinavian stocks trades at a 9 percent premium to its
pan-European counterpart based on expected earnings, compared
with a 10-year average of 12.6 percent.
Among single stocks, Assa Abloy's premium to its sector is
half of its average since 1995.
"These stocks seem to be attractive value for us, and
there's potential for them to improve return-on-capital-employed
and growth prospects as well," Norris said.
Swedish companies that export globally, such as
mining-machinery maker Atlas Copco and bearings firm
SKF, are also expected to benefit from a weaker
currency on the back of an interest-rate cut by the Swedish
central bank earlier this month.
The Swedish crown has lost almost 1 percent
against the euro since the rate cut, offering support to
industrial exporters, Danske Bank Senior Strategist Mattias
There are notes of caution, however; estimates from
top-rated analysts show a high risk that Norwegian companies'
second-quarter results could be disappointing, according to
Bearish hedge funds are also placing bets that some are set
for a fall. Nordic stocks including Norwegian Air Shuttle
, Finnish elevator maker Kone and Atlas Copco
account for 12 of the 15 most shorted stocks in Europe ahead of
their quarterly earnings, Markit data showed.
Still, even for firms with earnings headwinds, investors
highlight the potential of successful cost-cutting or
restructuring stories in Scandinavia such as Norway's Statoil
, Finland's Nokia and Denmark's Vestas Wind.
Vestas, which has gone through a major restructuring to
reduce its output, and jeweller Pandora, which has
benefited from a strategic shift to cheaper products, have
respectively seen their shares rise 60 percent and 40 percent
Coloplast, the world's largest maker of ostomy
and continence care products, has also reaped the benefit of its
recent restructuring and raised its full-year outlook on the
back of strong organic revenue growth.
The company's shares have risen more than 30 percent this
year, taking their gains since 2009 to more than 500 percent.
"Looking at these three businesses together, they're clearly
very different, but they are very strong franchises, all making
potentially very good margins, and they just needed not to screw
up," said Jim Campbell, European small cap fund manager for J.P.
Morgan Asset Management, who expects them to keep on
(Reporting By Francesco Canepa; Editing by Lionel Laurent and