China Mispricing a Trove for Nordea Fund Finding Rich Pickings

  • Nordea fund singles out Autoliv as a smart buy after slump
  • Fund has returned 13 percent on its investments this year

As Chinese benchmark stocks have continued to sink, a fund inside Scandinavia’s biggest bank says the development has created great opportunities closer to home.

Niklas Kristoffersson, a portfolio manager who helps oversee $1 billion at Nordea’s Nordic funds, says he’s “happier” now than he was in April because the collapse of Chinese stocks has helped reprice a market that had grown expensive.

“We can find more companies with a bigger upside than we did back then,” Kristoffersson said in an interview in Stockholm. “At that time we were more inclined to sell, not because we thought the market was about to decline, but because it was harder to find upside potential in the companies we were looking at.”

China’s Shanghai composite index has plunged more than 40 percent since mid-June as a fading growth outlook prompted leveraged investors to flee. The rout, which spread across global markets, continued this week as China’s August industrial output numbers were lower than expected and investment in the first eight months grew at the slowest pace since 2000.

Kristoffersson’s fund, which focuses on Nordic equities, has tracked stocks exposed to China to see which assets have suffered the worst mispricing. Those include Autoliv, a Swedish maker of car safety equipment. Investors have treated the stock as though it were much more closely related to China than it really is, Kristoffersson said.

“When you dissect it and look at profitability, it’s far from a 100 percent exposure to China,” he said. “Basically, you get China for free right now.”

Autoliv, which is the world’s biggest maker of air-bag inflators, has slumped more than 10 percent in the past three months amid concerns about its sales in China. While that fear is understandable, long-term factors like regulatory pressure for more safety features in cars remain key, according to Nordea.

“What’s triggered the decline is a concern about car sales; that’s a cyclical factor,” said Marie Nemlander, a portfolio manager who works with Kristoffersson. “Structural components are moving in the right direction, while the cyclical factor is moving in the wrong direction, short-term. That gives us a nice opportunity.”

Investors have punished Autoliv and Kone for their China exposure.
Investors have punished Autoliv and Kone for their China exposure.

Nemlander and Kristoffersson are former sell-side equity analysts who were recruited as part of an overhaul of Nordea’s asset management business after it lagged behind competitors. They are now part of a team of 15 analysts and fund managers who, under the stewardship of chief investment officer Mathias Leijon, have reviewed existing investment models, relying more on primary research.

The Nordea Norden fund has returned 13 percent this year, compared with a 4.7 percent gain in the Stoxx Nordic 30 Index and 6.4 percent in the MSCI Nordic Index. The OMX Stockholm 30 Index declined 0.5 percent in the same period.

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