Trade Wars May Be About to Hit the Giants of Nordic Industry

(Bloomberg) -- Investors in Nordic export giants are wondering whether they've grown too reliant on a global economic boom that may be about to end.

Their main fear is how much an escalating trade war will hurt orders and sales. Third-quarter results from names like Atlas Copco AB, the world's largest compressor maker, and Sandvik AB, whose customers include some of the biggest miners and carmakers, still show profit growth. But there are signs of vulnerability beneath the surface.

A slowdown in order growth is starting to show at some companies. Sandvik, Metso Oyj and Wartsila Oyj all saw a smaller expansion than in the previous quarter, while Atlas Copco's order intake even declined from a year earlier.

Most chief executives point to good demand. But several are voicing concerns. Here's an overview of what they're saying:

Atlas Copco CEO Mats Rahmstrom

• “I travel a lot, and there is a concern. Trade wars is the issue that is being discussed the most, and it creates concern among companies that for example have manufacturing in China.” (...) “On top of that, there's Russia, Turkey and Iran, so of course, compared with the first and second quarter there is more uncertainty and hesitation around decision-making.” (in phone interview, Oct. 19)

SKF CEO Alrik Danielson

• “The truth is that uncertainty is never good. Making investment decisions in an uncertain environment is never good, and that's something politicians should consider. When they create uncertainty it will have an effect at some point.” (in phone interview, Oct. 25)

Trelleborg CEO Peter Nilsson

• “Our order books continued to grow during the third quarter, but the market outlook is associated with greater uncertainty than previously, with trade policy decisions potentially having further consequences for global economic development.” (in 3Q report, Oct. 31)

Sandvik CEO Bjorn Rosengren

• “We are well prepared, maybe even better than our competitors. On the other hand, we are concerned, just like everyone else, that that type of trade barriers could affect the economic cycle and lead to lower demand. That is something we obviously wouldn't be able to avoid.” (on conference call with reporters, Oct. 23)

And there are plenty of macro indicators to fan investor fears. An official gauge of China's economy published on Wednesday showed that manufacturing activity continued to worsen in October, with the purchasing managers index falling to its lowest level in more than two years.

Investor concern has taken a heavy toll on share prices in October, though the end of the month offered some respite. Buyers have come back after price-to-earnings ratios, in many cases, fell to their lowest levels this year.

To contact the reporter on this story: Niclas Rolander in Stockholm at nrolander@bloomberg.net

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net, Niklas Magnusson, Tasneem Hanfi Brögger

©2018 Bloomberg L.P.