Over the past several years, plenty of single-country exchange traded funds tracking European economies have faced headwinds with the most notorious examples being those funds tracking PIIGS countries, most notably Greece, Italy, Portugal and Spain.
So it might be surprising to investors to learn that Finland and the iShares MSCI Finland Capped ETF (BATS: EFNL), which provides exposure to Finnish large-, mid- and small-cap stocks, is a Europe single-country ETF to tread carefully with. After all, through much of Europe’s volatility, Nordic countries have been seen as beacons of stability.
Add to that Finland is one of a small number of countries left in the world with an AAA sovereign credit rating. However, the economy there is rapidly declining. Finland has been a pillar in the Eurozone economic bloc, but the central has warned of an impending financial crisis that could rival Italy’s, pressuring the long-term outlook on the Finnish economy and related exchange traded fund.
“Its economy, which has contracted every year since 2012, was the worst performer in the common-currency area in the first three quarters of 2015, according to Eurostat data. Its deficit is relatively higher than Italy’s, despite being ranked fourth in the European Union in terms of how much taxes and social charges it demands from its citizens, and its unemployment rate exceeds those of its Nordic neighbors,” according to Bloomberg.
Recently revealed data show Finland’s unemployment rate at 9.2% and the country’s competitiveness is also in decline.
“The World Economic Forum said in a recent survey that Finland has slipped from fourth to eighth place in global competitiveness. The country’s wage-bargaining system is the most centralized among 140 countries surveyed,” adds Bloomberg.
The country’s economy has contracted for three straight years and sharing a border with Russia is problematic. With that proximity, Russia has previously been a major source of foreign direct investment to Finland, but as the Russian economy has struggled, its inflows to Finland have turned to capital departures.
iShares MSCI Finland Capped ETF
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.