Scant Finnish ownership of stock seen as problem for economy
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According to a new report, the sale of large chunks of Finnish companies to foreign investors at a low price is not in the country’s best interest. However, in his new book Onko omistamisella väliä? ("Does Ownership Matter"), Professor Vesa Puttonen of the Helsinki School of Economics also warns against protectionist attitudes.
The report had been commissioned by the Finnish Business and Policy Forum (EVA), the Finnish Foundation for Share Promotion, as well as OMX, which runs the stock exchanges of Stockholm, Helsinki, and the Baltic States.
In Professor Puttonen’s view, the future of ownership in Finland is affected by both attitudes and taxation, as well as whether or not local capital markets work as they should.
Puttonen writes that before possible sell-offs, the pricing of the various companies should be brought to the correct level. However, he says that this is made more difficult by the fact that the Helsinki Stock Exchange is a market place primarily focused on buying and selling shares of Nokia and Finnish wood processing companies.
He also says that smaller companies are largely ignored by professional analysts. Puttonen said on Thursday that there are currently 37 quoted companies on the Helsinki Stock Exchange whose development is not followed by any analysts, while 26 companies are followed by just one analyst.
The advantage of domestic investors in Puttonen’s opinion is that it they have "cheaper" access to investment information than foreign companies do.
Because of their perceived knowledge of domestic companies, Finnish investors also tend to invest more heavily on the domestic market. Consequently, Finnish investors provide cheaper capital for Finnish companies than large international investors.
Studies quoted by Puttonen indicate that the return on capital from foreign-owned companies is an average 18%, while the return on Finnish-owned companies is just six percent. However, foreign-owned companies tend to invest considerably less in the Finnish market.
The phenomenon can be partly explained by the "sales office economy". For instance, the Finnish branch of Microsoft does not need to invest in Finland, as it can achieve good results through product development that takes place at its head office.
Puttonen does not feel that foreign ownership is a problem as such. The problem is the lack of domestic ownership.
In his view ordinary Finns lack a burning need to invest in Finnish shares. Whereas Americans and Chinese need to save money in order to secure their old age, there is no such need in Finland. Consequently, large amounts of money are kept on bank accounts.
Meanwhile, Finnish pension funds disperse their investments around the world, and as a result, "nobody buys Finnish shares".
In many Finnish companies, ownership is still quite concentrated, and by European standards, an exceptionally large proportion of the shares of quoted companies is in state hands.
Puttonen sees two problems in the Finnish capital market: "There is no demand, and no supply".
As a solution Puttonen proposes changes in the taxation and pension systems, and the sale of state-held assets.
Helsingin Sanomat
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| 3.9.2004 - TODAY |
 Scant Finnish ownership of stock seen as problem for economy |
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