The Finns have consistently been keener on emerging market and Asian equities than most of their peers in Europe, but sentiment has never been as bullish as it is now. None of the fund selectors and asset allocators our researcher met in the last week of August said they will decrease their allocation to EM equities.
Indeed, the timing of the Finnish bullishness is rather curious: in the week EM, and specifically Asian indices experienced their largest one-day drop since the global financial crisis, the Finns feel encouraged to buy more instead of going into hiding, which most investors would probably do in such a case.
The waiting game
It turned out, however, that most of these bulls are actually bears, at least for now. Many of those who want to increase exposure are now underweight, and very few plan to step up their allocation soon. They instead prefer to wait six to 12 months, as they believe markets will go down a bit more before they edge up again. This appears to indicate the Finns have quickly transformed from convinced EM growth investors to value hunters, as back in May almost four in ten Finnish fund selectors preferred managers with a growth-style, while only 11% favoured value investing in emerging markets.
The ambivalent attitude of the Finns towards emerging markets is perhaps a reflection of their macroeconomic outlook, which has deteriorated markedly this year. In the first quarter, about seven in 10 Finnish investors had a positive macroeconomic outlook. This had come down to five in 10 by June, and to just one in three now. The majority is taking a neutral stance now, and there are even a couple of bears around.
While Finland’s fund selectors are quite positive about the trend of growth in the developed world, they fret about the hard landing appearing to take place in China, the slump on the commodity markets and their wider consequences for both EM and global growth. So that probably explains why the Finns would like to take advantage of cheaper valuations, but keep their powder dry for the time being.
