The worst is yet to come

01 July 2009

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It was supposed to be a seminar about green shoots, organised by the Nordic Chamber of Commerce together with Argentum and other industry players and held at the London Stock Exchange. But one presentation after another exceeded the last in sober realism, culminating with the bearish views of NM Rotschild managing director, James Vaux. The situation for companies and funds with debt packages reaching maturity this year is particularly dire, warned Vaux, recommending GPs and business owners to be honest and open towards their creditors. If not, he said, banks will come knocking on your door

One speaker, however, did demonstrate a forlorn bullishness. Olav Chen, senior portfolio manager at Storebrand, predicted that arrows might be pointing up again. Abundant natural resources and higher commodity prices in particular will make Norway one of the first countries to regain healthy growth rates.

His main concern, shared by Vaux, centred on the pessimistic predictions for labour markets, with rising unemployment across Europe and the US. With US unemployment nearing the 10% mark, real GDP growth will have to more than match that to stabilise the economy, according to economists' views.

Chen primarily deals with asset allocation in the stock and bond markets which, as he is quick to point out, is ahead of the real economy (particularly the stock market) and can thus provide an indicator for when the rest of the economy will pick up. Talking to Chen after the event, he repeated his view that stock markets have already reached rock bottom and any volatility going forward will be due to market corrections. Private equity, on the other hand, which suffers from a time lag compared to real-time stock investments, will continue to see trouble.

That trouble may well include a series of bankruptcies, with companies tumbling in a domino effect. Both Vaux and Espen Langeland, investment manager of Argentum, see this is as very likely, particularly in Q4. Indeed, at the time of going to press, EQT-backed Bodilsen, a manufacturer of flat-packed furniture and part of the EQT Opportunity Fund portfolio, had filed for bankruptcy after ongoing talks to save the business failed. The company was acquired in November 2006 for DKK 1m, and EQT subsequently injected DKK 100m.

One can conclude that while there have indeed been green shoots, we are still some way off seeing any of them blossom.

Yours sincerely,

Rikke Lilla Eckhoff

Editor, Nordic unquote"

Tel: +44 20 7484 9824

rikke.lilla-eckhoff@incisivemedia.com.