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Economy finland Investing

Finland Economy: Where is it going over the next two years?

Both Finland’s Central Bank and Finance Ministry have recently released updated forecasts for the next two years. The news isn’t great. In case you don’t understand subtlety, the Central Bank’s headlined their press release: Finland’s economic boom is over. A quote:

Finland’s economic boom is over and growth is temporarily losing momentum amid weaker global economic activity.

Will Finland’s economy crash? No. Even if finding a job in Finland will be more difficult than usual, these regular periods of slower growth and greater pressure on government finances tend to foster innovation and creativity. Instead of running to the hills maybe it’s time to look for an affordable investment opportunity? Of course, that’s if you can keep the cash coming in to pay your rent and buy food…

We’ll get into the details below. First, a little history on Finland’s economy.

Poor to rich

For most of the 1900s, Finland was a relatively poor country. Finland declared its independence in 1917. The following year, 1918, Finland had its own civil war. After that, Finland was a pretty stable, yet poor country until the Soviet Union attacked Finland in 1939. Finland fought two wars against the Soviet Union, the Winter War and the Continuation War. In 1945, after Finland had lost some of its Eastern parts to Soviet Union, the Continuation War ended.

Part of the peace treaty deal between Finland and the Soviet Union was that Finland had to pay war reparations to the Soviet Union. Finland managed to pay its reparations to Soviet Union on time which helped the development of various industries in Finland. Since the WW2, the economy of Finland has been growing quite steadily. According to the following statistic graph (from Tilastokeskus- Statistics Finland), the gross domestic product (GDP) of Finland has been growing steadily for the past decades.

However, there has been two major recessions during the last 50 years; the first one happened in the early 1990s and the second recession occurred after the Great Recession in 2008. Even though the Great Recession started in the United States, Finland, among other countries, suffered badly because of it.

Finland’s economy 2020 – 2022: Growth will slow

For the last 10 years, Finland has suffered economic challenges. After the Great Depression, a European Debt Crisis followed. It peaked between the years 2010 and 2012. Both of these crises affected Finland. Since 2009, Finland has had four different years when its gross domestic product (GDP) has declined: 2009 and 2012-2014. The highest growth in GDP occurred in 2016 (2.6%) and 2017 (3.1%).

However, the party doesn’t seem to last very long in Finland. The Bank of Finland forecast for Finnish GDP growth is less than 1% next year:

  • 1.3% – 2019
  • 0.9% – 2020
  • 1.1% – 2021
  • 1.3% – 2022

The Finance Ministry has a slightly different forecast, but basically the numbers show a consensus.

  • 1.6% – 2019
  • 1% -2020
  • 1.1% 2021
  • 1.2% 2022

It is always hard to predict the future, especially when there are so many uncertainties and factors that determine the global economy trend. As a small fish in the sea, Finland’s economy is prone to various global economic threats and risks. Finns have always relied on their export sectors which is also the reason why the Finnish economy goes hand in hand, up or down, with the global economy.

So want to know how the Finnish economy is going to do? Look at the global economic outlook.

Aging population & adventurous young professionals: Challenging mix

Finland will be facing many challenges in the future. One of the biggest challenge for Finland’s economy is the fact that our population is aging fast. After the WW2 in 1945-1955, there was a baby boom in Finland (and across Europe) and many children were born in that time period. In Finland, we call these people “the great generations” (baby boomers). These people are already retired or just retiring now. That means that there are lots of older people who need support and care.

Sunset on the Finnish economy for now?

While Finland is aging fast, the total fertility rate (TFR) per average woman reached a record low numbers in 2018 (1,41). It is hard to figure out all of the reasons why the average fertility rate per woman has declined in Finland during the past 10 years, but it will sure has its effects. As if it was not enough, more and more talented young professionals are moving abroad from Finland. There are many reasons for that, such as wanting to experience different cultures or pay less taxes. Luckily, professionals from other countries also come to Finland to work.

In order to keep Finland’s economy and welfare state strong and stable, we definitely need more workers here in Finland. There is great talent shortage especially in the tech and IT field, but we need workers in all kind of field (such as elderly care). There are just not enough young Finns anymore which is why we have to rely on foreign labor.

Joonas Saloranta covers Northern Europe investing, macroeconomics and more at the Financial Nordic blog.

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Categories
finland Investing

Nordic equity markets: positioning for a tough economic outlook

The Nordic economic outlook isn’t exactly rosy. Cue layoffs and downbeat growth expectations. Where to invest if you want a little more defense in your financial strategy?

Our bottom-line suggestion is to investigate discount retailers. Maybe Finland’s Tokmanni? If you’re really adventurous start your own company offering budget prices to deal-hungry consumers. Or are you more of a shark? Hold your cash, wait for equity prices to drop, then spend, spend, spend. 

How long will the party go on? 

Since the great recession in 2008-2009, we have witnessed a 10-year “bull run” in stock markets, especially in the United States. Other countries have witnessed similar results. Never before in the history of stock investing have we seen such a long period without a recession. Only one other bull market has lasted longer than seven straight years, and it was the bull run after WW2

(In this article, we are taking a look into the current economic situation and thinking about future decisions when it comes to retail investing.) 

So how long will the party continue? 

This is the million dollar question that no one really knows. Looking at the current equity prices (such as OMX Nordic 40 or the S&P 500), it can be tempting for individual investors to sell at least some of their shares, taking profits while they’re still there. However, by not holding  investments, or selling too early, investors can also lose some big gains that might just come to their portfolios. There is always risks and rewards, and everyone acts according to their own investing strategy.

In the past 10 years, US stocks have performed better than Nordic European stocks.

Economic growth is likely going to slow down

We have witnessed steady economic growth globally in the 2010s. Finland struggled quite badly after the great recession and the following European debt crisis. However, since 2015 the Finnish economy has recovered. According to Statistics Finland, Finnish Gross Domestic Product (GDP) has grown for four consecutive years, although the growth is expected to slow.

The Bank of Finland Forecast for Finnish GDP Growth:

  • 2019: 1.6%
  • 2020: 1.5%
  • 2021: 1.3%

It is always hard to predict the future, especially when there are so many uncertainties and factors that determine the global economy trend. As a small fish in the sea, the Finnish economy is prone to various global economic threats and risks. Finns have always relied on their export sectors which is also the reason why the Finnish economy goes hand in hand, up or down, with the global economy.

So want to know how the Finnish economy is going to do? Look at global economic outlook.

Whats should intelligent investors do?

Many of us are thinking ‘what should we do in this new situation’: equity prices are at all-time highs, everyone is talking about the next recession, but still there are not too many attractive investment options for stocks and real estate.

How can intelligent investors invest their money and equities in this kind of a situation?

It all comes down to personal preferences, investing strategy, risk-tolerance, life situation etc. Some things that every investor should consider…

Are you investing long-term or do you need the money in a few years ?

  • The sooner you need your money, the more risk you have if you invest in stocks. Stock market in general have always been a good option for long-term holders, but only those with enough time.

What kind of stocks do you have in your portfolio?

  • During tough economic times, investors should look for companies that thrive or at least survive recessions better than other companies. For example, discount retailers such as Wal-Mart or Tokmanni in Finland might be good options if a recession hits.

Should you allocate your investments into other asset classes?

  • To reduce risk in an investment portfolio, one should invest in different asset classes. Investing in precious metals, such as gold, or just having cash, might be a good option if stock prices drop. Gold price and stock prices have no or very weak correlation which is good for asset allocation. Building up a cash buffer might be a good idea during these times, because when the recession hits, equities are on sale!

Joonas Saloranta covers Northern Europe investing, macroeconomics and more at the Financial Nordic blog.

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Companies finland Investing

Our top 5 Finnish Tech Companies

Nowadays, Finland is one of the most advanced countries in the world when it comes to technology innovations. Based on data from sources including the World Bank, IMF and OECD, Finland was the 3rd most innovative country in the whole world in 2019. Only South Korea and Germany were more innovative than Finland.  

Finland would not be so high on the list without its great education system, researchers and skilful people. When high-quality education, innovativeness and advanced technology skills are combined, some great success stories are likely to happen, such as Nokia Cell Phones in the early 2000s, the famous mobile game Angry Birds or the world’s leading startup and tech event Slush

Here is our list of the top 5 Finnish tech companies:

Nokia

Nokia, with a market value of more than 20 billion USD, is a Finnish telecommunications and information technology company that became famous in the early 2000s with its cell phones and Nokia tune. 

Nokia’s history started already in 1800s, but it became a global success story with its cell phones. However, since 2007 Nokia has not been able to compete with Apple’s iphone and suffered badly ever since. Currently, Nokia operates in the fields of multinational telecommunications, IT and consumer electronics.

Rovio

You might not have heard about Rovio, but you have heard about Angry Birds, the famous mobile game (and a movie). 


Rovio Entertainment Oyj is a Finnish game developer company that was founded by 3 engineering students in 2003. Rovio published its famous Angry Birds mobile game in 2009 which was a success: in just 5 months, Angry Birds became the most downloaded app in Apple App Store. Rovio was able to capitalise on Angry Birds with several game extensions, spin-offs, movies, animated series, merchandize and even activity parks.

Another, originally Finnish gaming company, is Supercell. Their most popular mobile game is Clash of Clans. Chinese Tencent bought Supercell in 2015.

Polar

Polar Electro does well in the field of sports technology. They are particularly known for developing the world’s first wireless heart rate monitor. Polar’s gadgets are being sold in 80 different countries across the world.

Their most well known products are currently activity bracelets and sport watches, such as this new “fitness watch”, Polar Ignite which costs around 220 USD. 

Another, very similar Finnish company is Suunto.

Kone 

Kone Oyj is a Finnish company that operates globally in 60 different countries employing 55,000 people. Kone is a global leader in the elevator and escalator business: it builds and services elevators, autowalks, escalators as well as automatic doors & gates. Kone is one of the most valuable corporations in Finland.

Neste  

Neste is one of the biggest and most valuable companies in Finland and the largest producer of renewable Diesel in the whole world. Not necessarily a tech company, but they apply advanced biotech in their business


Neste has been a phenomenal success story: Harvard Business Review selected Neste as the 12th on the list of The Top 20 Business Transformations of the Last Decade. That is something that Finns should be proud of. Luckily, the Finnish State owns 35 % of Neste’s shares.

Joonas Saloranta covers Northern Europe investing, macroeconomics and more at the Financial Nordic blog.

Categories
finland Investing

Europe is the pioneer in global P2P-lending & Finland is dominating the Nordic markets

Peer-to-peer (P2P) lending or crowdlending/-funding is a new way of borrowing and lending money without any middleman. P2P-platforms operating online connect those who need the money with those who are ready to lend money. No bank is needed in this process. 

Borrowers can be either individuals or companies, and there can be tens or even hundreds of individual lenders contributing to one single loan. Crowdfunding is easier to get than traditional bank loans, which makes it an easy option for startups. P2P-lending is also more flexible, less time-consuming and often a cheaper alternative compared to traditional business loans that banks are offering. 

P2P-lending has become very popular in recent years

The first online P2P-lending platform, the UK’s Zopa, was launched in 2004. However, P2P-lending did not become mainstream investment option until few years ago. As we can see from the graph below, crowdlending has grown steadily during the last 5 years in Finland. At a global scale, P2P-lending did not achieve (early) mainstream adoption until in the 2010s. 

P2P-lending in Europe 

Europe is one of the pioneers in the P2P-sector. The first P2P-platform was launched in UK, which has been the market leader in Europe ever since. In 2017, the UK represented 68% of the overall market volume. In Continental Europe, France and Germany were the two biggest players in P2P lending space. As a small country with a population of only 5.5 million, Finland was doing relatively well compared to the bigger European countries.  

Baltic countries, especially Latvia are growing fast in the European P2P-lending scene: their favourable regulation  and entrepreneurial mindset has produced some decent results.  However, most of the investments in Baltic P2P-platforms come from international investors and loans

In general, there are many platforms in European P2P-markets to choose from. Mintos, a Latvian P2P-platform is the largest and most popular P2P-lending platform in Europe and it’s growing fast. 

P2P-lending in Finland growing

In 2019, there are 4 different P2P-platforms that are operating from Finland: Bondora, Fixura, Fellow Finance and Fundedbyme. Fellow finance provides consumer loans also in Germany, Sweden, Denmark and Poland being the leading P2P-platform in Nordic countries

According to P2PMarketData, Finland was the leading Nordic country in P2P-crowdfunding in 2017. Sweden was pretty close, but Denmark and Norway were far away. When it comes to geographical regions, the Nordics beat Benelux countries, Italy, Baltic countries and other big regions in volume. Rankings have probably changed after 2017, but this gives an idea about the P2P-lending scene in Europe. 

In Finland, P2P-lending has become a popular way to borrow and lend money. According to Finlands Bank, in total of 150,1 million Euros was borrowed in P2P consumer loans in 2018. The number was 40 % higher than year before that (2017), so the growth of P2P consumer loans has been quite strong. 

However, borrowing money via P2P consumer loans is not that popular among Finnish families; P2P consumer loans cover only 1% of the total household consumer credit.

Joonas Saloranta covers Northern Europe investing, macroeconomics and more at the Financial Nordic blog.

Categories
finland Investing

If you live in Finland, this new investment account can make you richer

According to the famous scientist, Albert Einstein: “Compound interest is the eighth wonder of the world. He who understands it, earns it… he who doesn’t… pays it”. It looks like the Finnish Parliament has finally understood this, which is good.

In March 2019, Finland’s Parliament made the final decision to approve the new laws that enable Finnish individuals to create their own individual stock savings account up to 50,000 Euros. Finns can open their account on 1.1.2020 and afterwards. 

What are the benefits of the individual stock savings account? 

There are some really favourable benefits for individual investors:

  • Individuals can transfer up to 50K for their individual stock savings account, but there’s no limit of how much the investments can grow inside the account. The earlier in life an individual (or a parent) starts using this account, the more benefits it usually provides.  It really matters how much taxes have to be paid for capital gains and dividends:
  • Let’s take an example: if some parents are wealthy enough to have the money to invest 50,000 Euros when their child is 10 years old (one-time investment in this example), that 50,000 Euros would grow to be 503,132 Euros after 30 years when he/she would be 40 years old. The average stock market return has been somewhere between 710 % depending on how it is measured. I used an 8% annual return in this example. That 503,132 Euros would be worth of around 350,000 after taxes and considering the yearly inflation (2% in this example), that 350,000 would actually be worth of 193,000 Euros on the day when it was first invested (when the kid was 10 years old). Still not bad for an initial 50K investment. 

Who is this not for ? 

The individual stock savings account is good for those who like buying single stocks and keeping them long-term. The account is not suitable for individuals who already have lots of stocks or big sums to invest, because the transfer limit is 50,000 Euros and previously purchased stocks cannot be transferred to the account. Also, it is not a good idea to use the account to buy stocks from other countries, because it’s not tax-efficient.

Most beginner investors start their investment journey by investing in ETFs (Exchange-Traded Funds), because these are good for diversification and usually cost-friendly. However, the new stock savings account is not applicable for ETFs, because it only allows individuals to buy single stocks.

Compared to other Nordic countries, Finns have been very careful with their money in the past when it comes to investing

We Finns are definitely too careful with our money. According to a Danske Bank’s survey, almost 80% of Finns think that investing in stocks is very risky. Only 50 % of Swedes think that way. From the graph below, we can see there is a huge difference when it comes to the ownership of stocks and mutual funds between Swedes and Finns. 

In 2018, the average Swede had 133, 402 Euros invested while the average Finn only had 53,712 Euros invested. Finns have traditionally mainly bought their home and kept the rest of their money in their bank account, avoiding the stock market.

I hope that Finns will be encouraged to invest more and become wealthier with this individual stock savings account. 

Joonas Saloranta covers Northern Europe investing, macroeconomics and more at the Financial Nordic blog.