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Corporate Research 14 November 2016

Contents

Migration to the Nordics – Crisis or opportunity? 1

An unprecedented refugee flow into Europe 2

Causes of the crisis – How did it come to this? 6

Europe struggling to digest refugee flows 11

Stemming the refugee tide – What next? 14

Interview – Migration and the Nordic economies 17

How migration affects the economy 21

Migration impact on industries and companies 26

Interview – Migration, housing and construction 31

A financial angle – Sustainability bonds 33

Interview: Rikshem – Demographics in housing 34

Disclaimer and legal disclosures 37

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Corporate ResearchEquity Research 14 November 2016

Migration to the Nordics – Crisis or opportunity?

A tidal wave of refugees almost overwhelmed Europe in 2015Europe is facing an unprecedented wave of refugees seeking shelter in the region, driven by conflicts and unrest in Europe's neighbouring regions. People are seeking to escape the key hotspots of Syria, Afghanistan and Iraq, which together accounted for half of the record 1.4 million refugees seeking asylum in Europe in 2015. This was twice as many refugees as at the last peak, during the Balkan Wars in 1992.

Tighter border controls and asylum policies have contained the situation – for nowMasses of refugees have travelled on from their arrival destinations in southern Europe to the countries with the most favourable asylum policies, such as Germany and the Nordic countries. The EU and various member countries have responded by tightening asylum policies and introducing stricter border controls, preventing irregular asylum seekers from exploiting passport-free travel within the Schengen area to enter their desired destination countries. This has sharply reduced refugee flows from the late 2015 peak down to more normal levels. We argue that these reduced levels may not be sustainable indefinitely. Border control and asylum policy revisions are temporary and would require political initiatives (in the face of recently strengthened populist political forces) to make them permanent. There are no current indications that the major hotspots are about to normalise and allow the refugees to return safely, and there are potential new trouble spots closer to home, such as Ukraine, where the armed conflict is flaring up again.

Short-term impact on the economy: major cost (and GDP boost)The Nordic countries are among Europe's biggest receivers of refugees. There are substantial costs for this, especially in Sweden. Swedish government projections are SEK 60bn in 2016, corresponding to 50% of annual corporate taxes paid, or 25% more than Sweden spends on defence. But the increased public spending is also, according to Nordea forecasts, boosting GDP growth by 0.5 percentage points in Sweden, and 0.1-0.2 percentage points in the other Nordic countries.

Long-term impact on the economy: demographic boost, if integration is successfulThe Nordic countries are all facing a major challenge from ageing populations. The share of populations aged 15-64 has fallen notably in the past five years, and immigration represented 100% of Swedish net population growth in the period. Immigration could be the solution to the challenge from a shrinking part of incumbent populations having to fund welfare systems supporting the elderly. But this requires successful integration of migrants into Nordic societies and labour markets. Whatever the outcome, it will show in economic growth and employment data beyond 2018E.

Migration "plays" in Real Estate, Public Services and TelecomsHow could migration and refugee flows impact various industries and companies in the Nordic economies? We review and highlight selected areas where migration could have a dynamic business impact. Construction & Real Estate stands out as a sector with specific potential business opportunities, notably real estate groups with public services tenants among the listed companies, including Hemfosa and Hemsö. Among non-listed real estate groups, Rikshem is among those with exposure, as described in our interview with acting CEO Sven-Göran Svensson in this report. Within Public Services, we offer a sample of private operators – both publicly and privately owned – that could have commercial roles to play in helping to meet the great current needs related to immigration. In Telecoms, we highlight Tele2 as a company with an offering particularly geared to refugees and immigrants. When considering financial products and solutions influenced by migration, we note that Hemsö pioneered the issuing of a sustainability bond in the Nordic region this year. The bond is to fund projects relating to social sustainability, in addition to energy and environmental aspects, and it fullyaligns with Green Bond Principles. One of the projects specifically relates to migration.

MarketsIMPORTANT INFORMATION AND DISCLOSURES AT THE END OF THIS REPORT


An unprecedented refugee flow into Europe

The number of asylum seekers to Europe doubled from the previous peak in 1992 to an all-time-high of 1.4 million in 2015

For the past few years, Europe has been facing a sharply rising tide of refugees seeking asylum in EU countries. A quick look at hard data on annual asylum seekers to the EU (plus Norway and Switzerland) from Eurostat helps shed some light on the magnitude of the challenge that Europe is facing from refugee flows. From a 30-year annual average of 390,000 asylum seekers, the number has grown more than threefold to a record level of 1.4 million in 2015.

The previous peak of just under 700,000 asylum seekers in 1992 was caused by the Balkan Wars at the time. But it quickly returned to more normal levels in the following years, whereas 2015 saw twice the number of refugees seeking asylum compared with 1992.

Asylum seekers to the EU in 1985-2016

160,010

697,070

250,895

458,345

212,050

661,935

1,392,145

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

Source: Eurostat

The refugee flow gained momentum in 2013-14, reaching a crescendo at unheard of levels in late 2015, and forcing several European countries to review and sharpen their border controls and asylum policies. Even when there was political will to embrace the enormous flow of fugitives, the system showed signs of collapse, as the existing infrastructure and resources for receiving and processing asylum applicants were woefully insufficient. There were simply no resources to provide provisions, shelter and security for such numbers of refugees.

All of the Nordic countries saw massive refugee inflows in 2014-15, but Sweden stands out, receiving 5-8x as many as its Nordic neighbours

The Nordic countries have seen similar trends for refugee flows as elsewhere in Europe. Denmark, Norway and Finland all saw a sharp surge in refugees seeking asylum in 2015. So did Sweden, but far beyond what its Nordic neighbours experienced. The number of asylum seekers to Sweden doubled to 160,000 in 2015 – in a league of its own compared with (the still historically high) 20,000-30,000 received by Denmark, Norway and Finland that same year. Swedish asylum policies remained comparatively generous until the inflow of refugees started to overwhelm the system. This triggered the introduction of stricter immigration controls, controversial within the Green Party currently in the coalition government with the Social Democrats, which ultimately led to the resignation of Sweden's deputy prime minister, Green Party minister Åsa Romson, in May 2016.

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Asylum seekers to the Nordic countries in 1985-2015

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

Denmark

Finland

Sweden

Norway

Source: Eurostat

Refugees typically flee from a conflict to a neighbouring country

Sadly, there have been, and still are, many conflicts around the world, forcing people to flee their homes. Most of these conflicts occur in emerging, non-industrialised regions. As a consequence, a review of where fugitives seek refuge reveals that most typically may their way to the neighbouring countries of their homeland. It is no coincidence that the top host countries for refugees are neighbours to the scenes of major conflict. The top five countries housing refugees in 2015, measured by the number of refugees they shelter, were Turkey, Pakistan, Lebanon, Iran and Ethiopia.

Number of refugees by host nation in 2015

2,541,352

1,561,162

1,070,854979,437

736,086 664,118553,912

383,095 369,540 342,973 316,115 314,506

6,288,277

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

Turkey Pakistan Lebanon Iran Ethiopia Jordan Kenya Congo(Dem.

Rep. of)

Chad Cameroon Germany Russia Others

# o

f re

fug

ees

Source: UNHCR, The United Nations Refugee Agency

Turkey, Pakistan, Lebanon, Iran and Jordan – neighbours to Syria, ISIS and Taliban-held provinces – host far more refugees than European countries

While it is evident that the countries receiving the most refugees are those nearest the conflicts, this does not mean the refugee flow is a marginal issue in developed countries, or indeed in Europe.

As we have highlighted, Europe has received twice as many refugees in 2015 as at any time in the past 30 years. And there are major differences between how receptive different European countries have been to asylum seekers.

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Germany received three times as many refugees as the US or Russia in 2015 and Sweden received on a par with them, despite being far smaller

Germany leads the pack by far in Europe, having maintained generous asylum policies for longer than any other major European country, making it top of the list of industrialised countries in receiving refugees last year. Germany's 477,000 refugees admitted is three times the level of the following four countries in the top five. We also find it striking that those following four each took in roughly similar numbers of refugees last year (150,000-180,000) as each other, despite two being world powers and the other two being small European countries. Sweden and Hungary both have populations of about ten million and have received similar numbers of refugees to the US and Russia, nations with populations of around 320 million and 145 million, respectively.

Top destinations among developed countries for asylum seekers in 2015

476,510

177,135 172,700 162,450 152,500

858,705

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

Germany Hungary United States Sweden Russia Others

# o

f A

syl

um

Se

eke

rs 2

015

Source: UNHCR, The United Nations Refugee Agency

Refugee inflows to Sweden corresponded to nearly 2% of the population in 2015

To get a better sense for the level of ambition in receiving refugees among the Nordic countries, we look at annual numbers of registered asylum seekers as a percentage of the existing population. On this measure, it is striking both how dramatically refugee flows into the Nordic region have increased, and how many more asylum seekers Sweden has admitted compared with its Nordic neighbours. Refugees seeking asylum in 2015 alone corresponded to nearly 2% of the Swedish population. This helps put in perspective the amount of media coverage, state budget revisions and political tension seen in Sweden over the past year. It has been a challenge to absorb such an inflow of refugees and this has stretched the immigration system.

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Asylum seekers as % of the Nordic populations in 2008-15

0.00%

0.20%

0.40%

0.60%

0.80%

1.00%

1.20%

1.40%

1.60%

1.80%

2008 2009 2010 2011 2012 2013 2014 2015

Sweden Finland Denmark Norway

Source: Eurostat

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Causes of the crisis – How did it come to this?

53% of the world's refugees in 2015 were from Syria, Afghanistan and Somalia

So what has caused the unprecedented surge in refugees seeking asylum in Europe in the past few years? The simplistic answer: major conflicts flaring up, with resulting war or unrest driving people from their homes.

According to UNHCR, the United Nations Refugee Agency, there were just over 16 million refugees, registered and classified as such, in the world by year-end 2015. A look at countries of origin of these refugees is revealing. Almost a third of current refugees are from Syria, and Syria and Afghanistan together account for nearly half of the world's current refugees.

Global refugees by country of origin, as of 2015

Syria30%

Afghanistan16%

Somalia7%

South Sudan5%

Sudan4%

Others38%

Source: UNHCR

Surge of refugees into Europe in 2014-15 driven by conflicts in Syria, Afghanistan and Iraq, which together represented 50% of asylum seekers in 2015

Close to home, to understand the changes causing the virtual avalanche of refugees into Europe in recent years, we can look at the breakdown by country of origin for asylum seekers to the EU plus Norway and Switzerland.

Even a quick glance makes it abundantly clear that the surge in refugees comes largely from three countries: Syria, Afghanistan and Iraq. There has been notable growth in refugees from other countries as well, but growth from these three has been explosive. They accounted for half of all asylum seekers to the EU in 2015.

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New asylum seekers to EU by country of origin in 2013-15

SyriaSyria

Syria

Afghanistan

Afghanistan

Afghanistan

Iraq

Iraq

Iraq

Others

Others

Others

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

2013 2014 2015

# o

f A

sylu

m s

eek

ers

to

EU

co

un

trie

s

Source: Eurostat

Why so many refugees from Syria, Afghanistan and Iraq? Again, the answer lies in conflicts. We will look at each of the three countries in turn.

Civil unrest in Syria turned into full-blown proxy war, with major foreign powers supporting different sides

Syria: Full-blown civil war with no apparent winnerUnrest in Syria started in the Arab Spring series of popular revolts in the spring of 2011. Attempts by President Bashar al-Assad's regime to end to public protests against his regime by use of force led to violent clashes between protesters and security forces. Opposition groups started taking up arms, first to defend themselves against security forces, and later to drive Assad's forces out of their local areas.

Unrest started locally in the southern city of Deraa in 2011, but evolved into full-scale fighting between rebels and government forces, reaching Syria's two biggest cities, Damascus and Aleppo, by 2012.

What started as an uprising against the Assad regime – established and in power since 1970 – quickly became a conflict with sectarian characteristics. The regime has a ruling clique of Alawites, a branch of Shia Islam, which represented only 11% of Syria's pre-war population. The core of the rebellion consisted of Sunni Muslims, who made up 74% of the population.

The sectarian battles attracted the attention of Syria's neighbours and led to outside involvement in the Syrian conflict. Since 2013, the Iran-backed Shia Islamist Hezbollah movement has supported Assad's government forces in the fighting, with further direct financial and arms support from Iran. Since its formation in 2014, the Islamic State (IS) has been part of the conflict, fighting various other involved parties, including government forces, rebels, Kurdish forces in northern Syria and its rival jihadists of the Al-Nusra front in the west of the country.

As if the involvement of various factions from neighbouring countries were not bad enough, there has been direct military involvement from major powers as well. Since September 2014, the US and a coalition of its allies have carried out air strikes to support Syrian rebels, followed in 2015 by Russia sending air force units into regime-controlled areas of Syria, launching air strikes in support of Assad's government forces.

To put it bluntly: Syria is a mess. What started as a popular revolt against an autocratic regime five years ago has devolved into a full-scale proxy war with direct involvement from both regional and world powers on different sides in the conflict. And no clear winner has emerged in the civil

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war yet. Syria is currently split into many different areas across the country, each controlled by one of the warring factions, or contested by more than one faction.

This has led to a humanitarian disaster. The UN estimates about 400,000 people have been killed in the conflict so far. Of a pre-war population of 22 million, nearly five million Syrians have fled the country. And another 6.5 million have been displaced from their homes but within Syria. The UN believes some 13.5 million Syrian civilians, six million of them children, will need humanitarian aid during 2016. 70% of the population does not have access to adequate drinking water, one-third is unable to meet basic food needs, and 80% live in poverty.

It is the scale of the conflict in Syria that has triggered such a massive flow of asylum-seeking Syrians into Europe. Nearly 25% of the country's population has – so far – fled abroad as refugees.

Afghan regime struggling to maintain basic security in the face of Taliban insurgency following NATO's military withdrawal in 2014

Afghanistan: Chaos after withdrawal of NATO troopsAfghanistan has a troubled recent history. The Soviet Union's invasion in 1979 to prop up a communist regime ended ten years later in Soviet withdrawal from the country. The ensuing civil war between several Afghan factions saw the fundamentalist Islamic Taliban movement seize power in 1996.

When the US government identified Osama Bin Ladin as the prime suspect behind the 9/11 terrorist attacks soon after they had taken place, it demanded that the Taliban regime of Afghanistan – which was harbouring Bin Ladin at the time – hand him over to US authorities. When the regime refused, US and UK military forces were sent into Afghanistan, toppling the Taliban regime in December 2001.

A new government was formed, supported by the International Security Assistance Force (ISAF) established by the United Nations Security Council to provide basic security. In 2003, NATO took command of the ISAF, and the force grew, peaking at more than 130,000 troops. After growing public opinion in NATO countries (particularly the US) against military involvement in far-off countries, there was a gradual retrenchment of military support to the new non-fundamentalist regime in Afghanistan. This culminated in the termination of the UN-backed ISAF mission to the country at the end of 2014. It was replaced by NATO's much more limited Resolute Support Mission (RSM), with some 12,000 personnel – a non-combat mission to train, advise and assist Afghan security forces.

The withdrawal of military support has drastically weakened the Afghan government, which is facing both the existing Taliban insurgency and a new local branch of IS. Civilian casualties from fighting and terrorism reached more than 10,000 during 2015, making it the bloodiest year for Afghanistan since 2001. Most foreign aid organisations and media have left the country, and last year one in three soldiers in the Afghan army deserted.

The deterioration in security has caused an exodus from the country, with some 2.7 million Afghans registered as refugees. This is nearly 10% of an original population of around 30 million. According to the European Council on Foreign Relations, Afghanistan lacks the capacity to control its borders, target migrant smugglers, support internal refugees and resettle those who return. Another critical challenge is that many of the Afghan refugees are from the middle classes, whose skills are needed for any effort to build up and redevelop the country. But those who have the drive and means are often those looking to escape the mayhem.

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Iraq has been unable to contain IS, which was formed after the US military withdrawal in 2011

Iraq: Struggling with ISTwo-thirds of Iraq's population of 37 million is made up of Shia Muslims, but it was a regime from the country's Sunni minority that ruled the country under Saddam Hussein. Following the 2003 invasion of Iraq, the US military presence in the country peaked at 170,000 troops in 2007. Two years later, the US committed to a phased military withdrawal, completed in 2011, after which responsibility for security was handed over to Iraqi military and security forces.

The Arab Spring series of uprisings across the Middle East in 2011 spread to Iraq, but protests there did not topple the regime. And to be fair, the Iraqi government in place was established after the US-led invasion that had ended Saddam Hussein's rule. It was not as autocratic or repressive as some other regimes in the Middle East had been before the Arab Spring.

There has been, and remains, sectarian tension between the Sunni and Shia populations, but the real surge in refugees leaving Iraq came in 2015 after the establishment of IS in northern Iraq, causing members of local populations to flee the terror imposed by IS militants on citizens perceived as not fully complying with Sharia law.

At a total of some 278,000 registered refugees, according to UNHCR, Iraq's refugee exodus in nowhere near the scale seen in Syria or Afghanistan, either in absolute numbers or in the share of the total population on the run. But the surge in refugees seen last year is dramatic. Of the 278,000 refugees, 127,000 were added in 2015 alone. And this was up from a run rate of 15,000 the year before. The almost ten-fold increase is a clear illustration of the frenzy with which Iraqis have sought to escape the grasp of IS.

Western powers have eliminated problems of costs and casualties from military presence in unstable countries...

"Not our problem", or is it...?Refugee flows from countries other than Syria, Afghanistan and Iraq should not be dismissed; they are up 80% over the past three years. But by contrast, the flow of refugees from these three countries is up by 750% in the same period.

There is a common denominator for these three countries. Western, or developed, nations have more recently opted to stay out of major tensions and conflicts these countries are undergoing. In Afghanistan and Iraq, US, European and international military presence has been terminated. It is easy to understand the strong pressure on home fronts to put an end to the massive costs and own military casualties from patrolling these troubled nations. Newly elected leaders have built political platforms on getting soldiers back home from far off, hostile and ungrateful territories.

In the case of Syria, the US and European nations (including Russia) initially opted not to intervene in the domestic conflict. As the uprising turned into civil war, took on sectarian dimensions and led to numerous atrocities, various nations were gradually drawn in, supporting different factions with funds, arms and training. When IS was formed and became another major player in the Syrian war in 2014, two different major powers became involved with air strikes in support of opposing sides: the US with its allies UK and France supporting moderate rebels and targeting IS and other jihadists; and Russia offering air support to the Assad regime.

...but are instead facing new problems, such as massive refugee flows from escalating conflicts and potential involuntary military involvement in said conflicts

The current proxy war in Syria is almost an everyone-fighting-everyone-else situation, with foreign powers offering direct military support to opposing sides. It is not an obvious alternative for any foreign power or coalition to intervene decisively in the conflict and bring it to an end through the use of force. Or to put it another way: the world standing by and watching from the sidelines for so long has allowed the conflict in Syria to escalate out of control.

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Without trying to argue the merits of outside military involvement in various individual countries, we simply note that withdrawal of military support in Afghanistan and Iraq has been fairly immediately followed by rapidly deteriorating security environments, giving rise to terrorism, conflict and massive flows of citizens seeking to escape from their home country. The reasons for Western countries pulling out may have been both sound and thoroughly evaluated, but it can hardly be argued that either Afghanistan or Iraq was ready to take full responsibility for maintaining security and stability on its own.

In Syria, a wish to stay out has turned into an involuntary military "semi-involvement" by several countries: no troops on the ground for garrisoning or patrolling, but projection of air power. And this air power is not being used in a co-ordinated effort to bring an end to the Syrian conflict but is instead being used for their respective agendas. The Russians have helped the Assad regime to avoid a collapse. The US and its allies are trying to strike and weaken IS and other jihadists. Meanwhile, Syria is being torn apart by the ongoing civil war, with no apparent winner in the conflict emerging. This war could drag on for years.

Regardless of blame being placed at the door of the UN, Western powers such as NATO, the EU or individual member countries, or Russia, the unfortunate state of affairs is that Syria has become a melting pot of conflict with plenty of vested interests. It will arguably require a gargantuan effort to bring lasting peace to the country. And until that happens, the outside world will have to deal with the current diaspora of some five million Syrian refugees.

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Europe struggling to digest refugee flows

Imbalances in the EU immigration system – Greece and Italy receive the most refugees, but many refugees have moved on to seek asylum in countries with perceived better terms, like Germany and Sweden

Passport-free travel between Schengen countries in Europe has given opportunities for ''asylum shopping"' and caused security concerns after recent terrorist attacks

The EU has faced multiple challenges in responding to the snowballing refugee flows into Europe in late 2015. We highlight the two most obvious ones.

Uneven burden for receiving asylum seekers among EU countries: The burden of processing refugees arriving in the EU has been extremely uneven, with just two countries – Italy and Greece –receiving the great majority of asylum seekers, particularly from Syria. According to the EU's Dublin System, asylum seekers cannot choose which EU country will process their asylum application. It will normally be the EU country they first arrive in. There are, however, discretionary provisions under EU legislation as well as a lack of full implementation of the Dublin System. This has led to some EU countries offering more attractive reception and asylum systems than others, which has in turn led to "asylum shopping" in the EU by refugees. Some countries, notably Germany and Sweden, have been practically flooded by asylum seekers compared to the rest of the EU.

Secondary refugee flows within the EU and Europe: The Schengen agreement allows passport-free travel between all signatory countries in the EU. This freedom is in practical terms a lack of border controls. It has given refugees the possibility to move on to their most-favoured asylum seeking destination rather than remaining in the country where they first arrived. This has allowed the uneven pressures from the particularly big refugee flows mentioned above to build up. It is also a major potential security issue in the EU. The terrorist atrocities in France and Belgium in 2015-16 highlighted how jihadist terrorists could exploit refugee flows both to enter Europe and to hide their travel within the EU. The ability of refugees to avoid registration and fingerprinting in their EU country of first arrival has been a significant concern.

The EU commission introduced measures to relocate 160,000 refugees within Europe in September 2015

In September 2015, the EU Commission presented a legislative package in response to the first challenge above. This package included a targeted relocation of some 160,000 refugees, from particularly Greece, Italy and Hungary to other EU countries. Member states that refuse to receive relocating asylum seekers would face financial penalties. Despite this, the EU Commission reported in July 2016 that only some 3,000 refugees had by then been relocated under the scheme.

In December 2015, Sweden was given a one-year suspension from obligations to receive relocated refugees, owing to the country's immigration system being overwhelmed by the inflow of asylum seekers.

Six Schengen countries in the EU re-introduced border checks in 2015

Towards the end of 2015, the flow of refugees threatened to overwhelm the migration apparatus of several European countries. Irrespective of desires and ambitions by governments to receive refugees, extraordinary measures were desperately needed in order to be able to meet even basic needs like safety, shelter and sustenance to those who were admitted. Six Schengen countries - Austria, Germany, France, Sweden, Denmark and non-EU member Norway – re-introduced border checks and started to refuse entry to illegal immigrants.

In conjunction with re-introducing border checks, Sweden (which had, alongside Germany, been one of the EUR's biggest destinations for refugees) flagged a tightening of its asylum rules, conforming to minimum levels for granting asylum within the EU. Legislation to this effect was subsequently passed in Sweden in July 2016, to last for three years.

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The EU deal with Turkey 2016: return of all new irregular migrants in exchange for financial support

In March 2016, the EU struck a deal with Turkey, allowing Greece to return to Turkey all new "irregular" migrants. In exchange, the EU offered financial support for Turkey's huge refugee population, accelerated visa liberalisation for Turkish citizens, and increased resettlement of Syrian refugees living in Turkey.

The EU Commission proposed further tightened asylum rule in July 2016 to crack down on unfounded asylum claims. In essence, these proposed new rules would mean that those asylum seekers who refuse to give fingerprints or who move between countries in Europe would have their claims automatically rejected and face deportation.

The flood of refugees has boosted support for Nordic populist parties

Nordic political landscape: Surge for the populistsThe tidal wave of refugees flooding Europe in the past few years has given fuel to the agendas of populist parties across the Nordics. The degree to which each country's local populist party's platform is based on xenophobia and an anti-migration stance varies, but there have been opportunities for all of them to capitalise on the extreme migration flows in recent years.

Share of parliamentary votes for Nordic populist parties, 1990-2016

0%

5%

10%

15%

20%

25%

1990-1993 1994-1998 1999-2002 2003-2006 2007-2010 2011-2014 2015 2016

Sweden Democrats Progress Party Danish People's Party Finns Party

Source: Demoskop, Norfakta, Gallup, Taloustutkimu

Populists are the second biggest political party in Denmark

The Danish People's Party (Dansk Folkeparti) has been a major force in politics since its inception in 1995, but it has not yet been in cabinet in a government coalition, despite winning 21% of the votes in the 2015 general election (making it the second biggest political party in Denmark). It began as a breakout group from the Progress Party, which was initially founded as an anti-tax protest movement in 1972.

Populists are a government coalition partner in Norway...

The Norwegian Progress Party (Fremskrittspartiet) began as a sister anti-tax protest movement to the Danish Progress Party in 1973 and has been a significant force on the Norwegian political scene for decades. The most vocal anti-immigration proponents were marginalised or forced out during internal party struggles in 2000-2001, making the Progress Party respectable enough to be represented in the Norwegian cabinet in coalition with the Conservative Party after an election victory in 2013. Progress Party leader Siv Jensen is currently Norway's finance minister.

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...and in Finland The Finns Party was formed after the dissolution of the Finnish Rural Party in 1995. It spent its first 20 years in opposition until forming a government with two coalition partners in 2015. Finns Party leader Timo Soini is currently foreign minister and deputy prime minister, and the Finns Party also hold several other key ministerial posts, including justice, defence and health. The popularity of the Finns Party has plunged in polls after its move from opposition into government.

The main Swedish populist party is arguably the most explicitly anti-immigration within the Nordics

The Sweden Democrats party was founded in 1988, with roots in Swedish white supremacy and fascist movements. Unlike its Nordic populist peers, it has, since its inception, had a clearly anti-immigration stance, which continues to dominate the party agenda. It took until 2010 until the Sweden Democrats gathered more than the 4% threshold of general election votes required to get seats in parliament. Before this, the party was a relatively peripheral force in Swedish politics. In the 2014 general election, The Sweden Democrats more than doubled their share of the votes, to nearly 13%. Although the party holds a balance of power position in a hung parliament between the socialist and conservative blocks of parties, both sides have continued to refuse to co-operate with the Sweden Democrats. This has kept the party out of government, and unable to force its own policies through parliament. Its influence has been limited to an ability to veto undesired legislation.

Overall, these Nordic nationalist and populist parties have been able to ride a wave of public discontent and alarm. It was of a more general nature during the global financial crisis of 2008, often EU-centric during the Greek turmoil of 2011 and thereafter, and in the past few years has been related to overwhelming refugee flows. This has taken the anti-immigration parties into government coalitions in two out of four countries and given these parties a tangible influence over immigration and other policy across the Nordics.

The Swedish populists have a parliamentary balance of power position between the two major political blocks

So far, the surge of the populist parties has not caused a parliamentary crisis in any of the Nordic countries. The most sensitive political situation is possibly in Sweden, where a hung parliament in the 2014 general election almost led to a re-election; both major political blocs refused to rely on the Sweden Democrats for forming a government. A red-green government was formed in the end and has been in power for two years. But it remains dependent on passive support from the Sweden Democrats, and has very little political room to pursue a reform agenda. The Nordic region has so far managed to retain reasonable political stability, despite the increasing influence of populist political movements.

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Stemming the refugee tide – What next?

The onslaught of refugees into Europe, culminating in late 2015, made the EU as well as individual countries hit the emergency brakes. Re-introduced border controls within the EU, between Schengen countries, created an effective obstacle for irregular immigrants entering the EU and trying to move on to destinations perceived as most favourable for asylum processing, like Sweden and Germany.

In addition, several countries with generous asylum policies scaled down toward EU minimum level policies, making it less worthwhile for asylum seekers trying to illegally cross Europe in search of a likely haven.

Refugee flows into Europe have fallen back to normal levels...

These responses have had a marked effect on the inflow of asylum seekers into the Nordic countries, with monthly numbers since the beginning of 2016 running far below elevated 2015 levels.

Monthly asylum seekers to Nordic countries, 2015-2016

4,890 4,1055,375

8,060

11,725

24,260

39,05536,585

13,830

4,1652,245 2,110 2,180

5,030

8,155

10,815

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

Sweden Denmark Norway Finland

Source: Eurostat

...following tightened border controls and asylum policies from late 2015

For the Nordic region, the number of asylum seekers year-to-date has almost halved from 2015. Sweden and Norway have seen declines in excess of 50% from exceptionally high levels last year, while Denmark and Finland saw slightly less radical spikes in 2015 and are now down around 10%.

Problem solved?Does this mean Europe has now put a lid on the refugee inflow, is keeping pressures outside its borders, and can focus on digesting the asylum seekers already admitted? For the time being, yes.

We argue it would be naïve to assume that this situation will persist indefinitely. We would highlight three major factors that could potentially trigger new, major refugee flows seeking asylum in Europe and the Nordics.

We see several reasons why refugee flows could potentially surge again in the future

1) Extraordinary border control and asylum policy measures are temporary. Political and practical realities change, and governments act in response. Nordic populist political movements and parties have surged from the wave of refugees in recent years, and have impacted the political agenda. But populist parties do not represent more than 10-20% of the votes, and the political mainstream is showing commitment to humanitarian migration. Measures taken by European countries in the past

Nordea Markets 14


12 months to stem the flow of asylum seekers are typically time-limited. Upon expiry, they will revert to normal rules and policies – unless the extraordinary measures are renewed.

The example of Sweden serves as an illustration:

In late 2015, Sweden was given an exemption by the EU commission from having to receive its share of relocated refugees from within the EU. The exemption was justified by Sweden's immigration system being overwhelmed by large numbers, and was to last for 12 months. ID checks at the border to other Schengen countries were introduced in late 2015. At the time of this writing, they are due to expire in November 2016. Sweden's asylum policies for refugees were tightened to minimum EU levels at the start of 2016. The legislation passed to this effect by parliament is for a specific three-year duration. Unless new legislation is passed, Sweden would revert to its pre-crisis asylum policies in early 2019.

2) Trouble is still brewing in the world, potentially creating more refugees. Making entry into EU countries more difficult may greatly help the immediate short term problem of receiving, processing and caring for large numbers of refugees. But as long as conflict and war makes people in the outside world unsafe and homeless, there will be pressure from such people seeking refuge in the relative safety of Europe. There is little reason to expect any imminent reversal of refugee flows from the biggest current hotspots, and there are new potential areas of trouble in Europe's vicinity:

Civil war in Syria has become a proxy war, with gridlock between conflicting interests of major players like the United States and Russia. At the time of this writing, there is no promising or credible peace process in place.Afghanistan has a poor internal security situation, with its regime incapable of keeping the Taliban insurgency (or indeed the Afghan faction of IS) in check. NATO has pulled out, leaving no direct local support.Iraq is struggling to contain or expel IS in its northern provinces. US direct military support has been withdrawn, leaving the local regime incapable of maintaining sufficient levels of security or protect the country's territorial integrity.In Africa, ongoing conflicts in Ethiopia/Eritrea and Sudan/South Sudan have no obvious end currently in sight. These regions are #4 and #5 on the list of top origins for refugees to the EU, after Syria, Afghanistan and Iraq.New trouble spots could flare up. An obvious risk may be the Ukraine, where resumption of full scale conflict between government forces and Russian-backed insurgents could lead to war and refugee flows. Turkey might be less likely to see any form of blow-up, but almost saw a coup d'état by its military this summer and has major internal tension between secular and fundamentalist Muslim factions. On top of this, there is ethnic-based friction with the country's Kurdish minority.

With all this current and potential future unrest outside, but near, Europe, demand for asylum is accumulating even as the doors are closing. The question then becomes what happens if pressures need to be vented in order to avoid too much strain on the systems in those countries bordering the EU.

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3) If the EU closes its doors, neighbours and refugee "stopovers" further away could get overwhelmed. In practice, Europe will not be able to ignore refugee flows outside its borders. To put things in perspective, Germany is the biggest European refugee host, harbouring some 316,000 people. But it is #11 globally. As refugees won't flee to Iraq/IS, Syria's non-war-torn neighbours Turkey, Lebanon, Iran and Jordan together host nearly 5.3 million refugees – almost 17 times as many as Germany. If such numbers keep growing, tensions will grow. This could lead to systemic collapse, putting host countries under great strain, and lead to disorderly flows of irregular refugees seeking to enter the EU in covert ways. It could be argued that the last thing Europe needs is for the biggest current host countries for refugees to start stumbling under the pressures of refugee flows. If they do, it is bound to have consequences for Europe.

It ain't over yet?Given these three factors – and surely others which we have not brought up here – we believe Europe and the EU should be prepared for significant refugee flows into the region in the future.

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Interview – Migration and the Nordic economies

Below is an interview with Annika Winsth. Annika is Chief Economist and Head of Macro Research,

Sweden at Nordea Markets.

JT: 2015 was an extraordinary year, filled with news headlines of refugees flooding Europe, the Nordics and Sweden. What has happened since then?AW: The refugee flow into Europe last year was unique, and even more so in the Nordic countries. Sweden in particular stood out by receiving far larger numbers than its Nordic neighbours, and way more than at any previous time. Last year was also unique in that Sweden, Denmark and a few other European countries re-introduced border controls for citizens from other Schengen countries. Sweden followed up by changing its asylum rules to minimum EU levels. These measures have led to a sharp decline for refugee inflows to the Nordic countries, to below the 2014 and even below the 2013 levels.

JT: Refugee flows can impact economies in several ways – how do you expect costs for receiving and processing asylum seekers to affect Nordic economies?AW: As the flow of refugees has dropped so dramatically, the impact on Nordic public finances should be limited and mainly be dealt with in 2016. When comparing public expenditure related to migration between countries, I would argue it makes more sense to look at costs as a percentage of GDP. Costs are rising because of the massive refugee inflows last year, but the increase should ease next year owing to sharply reduced refugee flows. The Nordic countries have chosen to fund the surge in migration-related costs in different ways. In Denmark, the costs have been balanced by a reduction in foreign aid, resulting in a marginal increase of net expenditure.

Sweden stands out with the largest cost increase, of SEK30-40bn, in 2015. This is substantial, just under 1% of GDP, but still a limited number in context of the whole Swedish economy. To put this in perspective, it is the same amount that Swedish households have increased their debts every 2-3 months over the past few years. Of more concern is that Swedish municipalities will have to bear most of the cost burden in the future. State support has so far not covered the cost peak, and if they are forced to raise municipal taxes, it could dampen private consumption and growth. From a macroeconomic perspective, state support covering refugee-related costs would be preferable.

JT: In what ways can migration give a positive contribution to economic growth? How much, and how sustainably?AW: Receiving refugees affects public consumption directly and creates jobs related to refugee processing and integration. Longer term, there should be additional job creation in areas like health care, social services and education. In Denmark, Finland and Norway, this brings a small positive contribution to GDP growth in 2016 and 2017. In Sweden the effect is larger, boosting GDP growth by around half a percentage point. With the current, reduced, refugee flows, there is no notable growth boost from 2018 and beyond anywhere in the Nordics.

I think it is also important to mention the GDP per capita measure, a typical gauge of a country's level of wealth. It should be pointed out that Sweden has managed well since the financial crisis. Nevertheless, there is some concern, particularly in Sweden, that GDP per capita would decline due to migration. But a lower GDP per capita is not the same as the

Nordea Markets 17


Swedish population getting poorer. True, arriving refugees start on a much lower level, but will typically be much better off than before, and they are able to progress. As they do, their contribution to GDP growth will in the short run make the Swedes better off as well. In a longer perspective it is critical that integration into the Swedish labour market is successful.

JT: What is needed for success with integration of migrants in the Nordics?AW: I see two scenarios. The first one, which I think is quite possible, is where we open up the labour market and get a successful integration. In this scenario we will in the future look back on refugee migration as a successfully exploited opportunity to add migrants to our Nordic labour force, particularly in the service sector. One example is elderly care, where there are significant labour shortages. The migrants help counterbalance the ageing Nordic population.

The negative scenario is failed integration, which would lead to major costs for the society and a deeply polarised society. This is a scenario that very few people really want. The key to integrating immigrants is to help them enter the labour market. The biggest challenge is that many of the large number of refugees who recently arrived in the Nordic countries do not have qualifications or skills adapted to local labour markets. Education should be used primarily. Not everyone can be trained to necessary levels, however, and not quickly enough. The solution would be to give room in Nordic labour markets for new, less qualified jobs. We should be prepared to pay others to help us with tasks we currently do ourselves. This would create demand for services such as laundry, lawn mowing, dog walking and car washing, to give just a few examples. But it will require a change of attitudes.

JT: Does the political establishment agree with this view?AW: Several politicians have started to look into this, but many are not there yet. The official view is typically that refugees should be educated to at least upper secondary school level, which could make them qualified for many jobs that are currently available. I think anyone can sympathise with such an ambition, but it may not always be realistic. Can society and the refugees themselves afford the time and effort it may take until such an education is completed? Will it be possible to train every arriving refugee to that level? Including older people, who have virtually no basic education to build on? This is a sensitive topic, where politicians must balance core humanistic values with what they believe is actually achievable.

JT: Are there any historical examples of how an economy has coped with sudden major population inflows from migration?AW: Sweden's latest surge of refugees, and hence immigrants, was in 1992, during the Balkan wars. This was an example of successful integration. Sweden enjoyed a period of strong growth from 1994 and onwards, and many of those immigrants found employment in the manufacturing sector. Many of those jobs have since disappeared, and today we expect – or hope – that migrants will find jobs in the service sector. This means we can't turn to history for guidance. We need to think in new ways: There is a need for new, less qualified jobs, and they will mainly be found in the service sector.

JT: Has there been any evidence of investors or the corporate sector showing concerns over how migration might affect public finances in Nordic countries? Or any worries over border control and asylum rule changes actually being temporary measures?AW: At the peak of the refugee inflow in 2015, there were notable concerns among investors that the situation might get out of control. This was in focus for global media and made the politicians act. This faded

Nordea Markets 18


after Sweden and Denmark re-introduced border controls towards the end of the year, effectively preventing unauthorised refugees from entering the countries. Once refugee flows fell down to a trickle from peak levels, the issue disappeared from the investors’ agenda. The impact of migration costs on public finances is currently not seen as a major issue by investors. But this is a major political challenge – particularly in Sweden, which has received by far most refugees of all the Nordic countries.

JT: Why does Sweden stand out so much in receiving far more refugees than other EU countries or its Nordic neighbours?AW: Sweden has a history of political consensus being more pro-immigration. Compared with other Nordic countries, it took much longer for the Swedish mainstream political establishment to face populist pressures of similar magnitude as in other countries. It was not until 2014 that a populist party actually won seats in the Swedish parliament, whereas Norway now has a coalition government including such a party. In late 2015, the political desire among mainstream Swedish parties to embrace the soaring flows of refugees had to succumb to practical realities of not being able to ensure shelter, security and sustenance for such large numbers arriving. On top of this came a strained ability to integrate so many into society in the years ahead.

JT: Do the refugee inflows create investment needs for the public sector, like housing and office buildings?AW: There are large needs, for housing and for schools and healthcare, which have been augmented by the arrival of the refugees. Sweden stands out. The huge number of refugees has forced many municipalities to use expensive temporary accommodation solutions, which is unsustainable. There has been a general problem with expensive housing construction since long before the crisis, and especially regarding more simple housing. This has to do with regulations for how landlords can charge rents, minimum standard requirements for new housing, and often complicated and slow processes for building permits. Pressure will mount for developers to be allowed to build housing of a lower standard, with less room for obstructions and appeals to building permit processes. The high cost of land in the major cities is also a challenge for low-cost housing.

JT: Are there related needs for public services, like schools, health care and social services?

AW: There are great needs in these areas as well. Not all refugee children have been offered admission to schools due to a lack of capacity. There are potential opportunities for private operators to help meet the needs, but they are facing political risk as there is a political debate on private profits in the welfare sector. When the borders were closed, the need for refugee housing declined, which affected the private entrepreneurs.

JT: Refugee flows into Europe have slowed since last year, but from tighter border controls and asylum policy, rather than from any lack of refugees. There are many question marks on the horizon: Brexit, global trade after the US presidential election, pressures on Angela Merkel ahead of German elections next year. Do you see any major risks for refugee trends in Europe in the coming years?AW: There are obvious risks related to current, and potentially new, areas of conflict in the world. In Europe's vicinity, the Turkish economy has prospered for many years, but was the victim of an attempted coup d'état earlier this year. Any turmoil there could set things in motion, both for the Turks and for the over 2.5 million refugees who are currently in the country. Another example is Russia. Any escalation of hostilities in Ukraine could trigger refugee flows. We cannot know what will happen. But both governments and corporate management can consider the potential risks and prepare for them.

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From an economic point of view, I would argue a key risk is Europe and the Nordic countries closing their borders even more tightly to migration. There are strong political winds blowing against global trade, as proven by both US presidential candidates' attitudes to trade agreements and by Brexit. There is little remembrance, or acknowledgement, that growth in global trade is behind much of the increased prosperity the world has experienced in the past two decades. People have migrated for humanitarian and economic reasons throughout human history, and I doubt that this will stop now, in the digital information age. A more pressing long term issue is the sustainability of tax-funded welfare systems in developed nations. We can clearly see that excessive inequality and polarisation can wear down societies, with Brexit and Donald Trump's candidacy for US president arguably being examples of this. Welfare may hence be critical, but how to fund it if citizens are no longer confined within their borders? They will pay taxes as long as they feel they get something in return. But if they don't, both corporate and human citizens could opt to leave.

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How migration affects the economy

The long game: Potential demographic boostWe will return to how migration, especially refugee inflows, affects Nordic economies in the short- to medium- term, and start by looking at the much more critical potential long-term impact on economies.

Migration could, in the long term, help offset the economic burden of ageing Nordic populations

The Nordic economies are facing a major long-term challenge in the form of ageing populations. The share of the population of working age, 15-64, has started to plunge in recent years. This trend means that the working part of the population will carry an ever-increasing burden to support the children and the elderly. Putting it simply, the only options for dealing with that are arguably to either cut benefits for the elderly or to increase taxation to pay for benefits. Both options are naturally very challenging politically for any government.

Share of population aged 15-64, Nordic countries, 1960-2015

62

63

64

65

66

67

68

69

1960 1966 1972 1978 1984 1990 1996 2002 2008 2014

Percent

World Bank, world development Indivators, Health, Popula on, Structure, Ages 15‐64

Sweden Denmark Norway Finland

Source: Macrobond and Nordea Markets

Enter the migrants. In theory, migration could be a solution to the demographic problem in mature economies like in the Nordics. Adding new citizens, at or near working age, could give an injection of new capacity into the national workforces. This could make up for insignificant net domestic population growth and longer life expectancy increasingly the elderly, non-working, share of populations.

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Sweden: Change in population and labour force, 2005-20E

0

200

400

600

800

1000

2005 2007 2009 2011 2013 2015 2017E 2019ETh

ousands of people

Change since april 2005, Ages 15‐74

Labour force, na ve born

Popula on, na ve born


Using Sweden (which has been by far the biggest host nation for refugees and migrants in the Nordics) as an example, we note that in the past 10 years, immigrants have represented two-thirds of the growth in population and the workforce. The share is forecast to be even higher in 2016E-20E, even if the growth in workforce falls below the growth in population. The latter reflects the great numbers of refugees arriving in the past few years facing challenges in entering the Swedish labour market.

Example: Immigration accounts for 80% of Swedish population growth in 2008-20E

Nonetheless, without immigration, Swedish population growth had been miniscule in 2005-14 and is expected to be negative thereafter. Including the forecast years, migration is predicted to have accounted for over 80% of population growth and workforce growth.

Sweden: Change in no. of employed in workforce, 2008-20E

‐200

‐100

0

100

200

300

400

500

2008 2010 2012 2014 2016 2018E 2020E

Thousands of people

Number of employed people, Ages 15‐74, change since Jan 2008

Foreign born Na ve born


While migration gives a vital ingredient in the form of population growth, it is critical for arriving migrants to be successfully integrated into society in order for the ingredient to have the desired positive effect.

The demographic immigration boost to economies requires successful integration and entry into labour market

If migrants only add to population, but not to workforce growth and employment, they risk becoming a net economic burden. Not only would they not then generate taxable income, but they would typically also require support and benefits from the (tax-funded) welfare system. This

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would add to the demographic headwind for the economy rather than ease the burden.

Sweden: Employment rate, 2006-20E

50

55

60

65

70

75

2005 2007 2009 2011 2013 2015 2017E 2019E

% of popula

on

Employment rate, Ages 15‐74

Na ve born Foreign born Total


The employment rate in the working age population in Sweden is substantially lower for immigrants than for the incumbent population, although it has grown faster for immigrants. The forecast decline in the employment rate for the foreign-born in 2017E-20E is related to the huge inflow of refugees requiring time and effort for training and entry into the Swedish labour market. Linguistic, educational and other qualification barriers prevent most newcomers from being able to seek and find employment in the beginning.

The long-term dream scenario would be successful integration of the bulk of the numerous refugees admitted during the past few years. This would give a direct boost to GDP growth and help avoid the negative spiral for public finances associated with an ageing population.

This type of long-term demographic benefit would be beyond the time horizon for medium-term macroeconomic forecasts, and hence not be a material factor in, for example, current consensus GDP forecasts for Sweden.

Short- to medium-term: Rising public spending and growthSticking to the next few years, migration – refugee inflows – leads to immediately rising public consumption. Governments and local authorities, typically municipalities, have to arrange accommodation, security and food for refugees. And they will need to hire staff and find premises for processing all asylum applications. The stage after that is typically education and training, for both children and adults.

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Fiscal cost of migration as % of GDP by EU country, 2014-16E (ranked by 2016E)

1.0%

0.6%

0.4% 0.4%0.3%

0.2% 0.2%

0.1% 0.1% 0.1% 0.1%0.1% 0.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

2016

2015

2014

Source: IMF

How much are the Nordic countries spending on migration and reception of refugees? They are spending plenty.

The Nordic countries are taking the greatest costs in Europe for migration as a % of GDP

A study by the IMF lists Sweden, Denmark and Finland as the top three countries measured by 2016E public expenditure on migration as a percentage of GDP. And the Nordic countries do not spend just a bit more, they outspend most other European countries by a factor of 4-10x.

Exactly how increased costs for migration are taken, and what their net impact on government budgets will be, varies by country. In Denmark, higher costs for refugee processing have been balanced by reduced expenditure on foreign aid, which has kept the net effect on public spending from the refugee flood at close to zero. Sweden has done this partially, also covering the raised migration expenditure by increased borrowing and some raised taxes.

Public consumption as % of GDP by Nordic country, 1996-2018E

18

20

22

24

26

28

30

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017E

Per

cen

t

General Government, expenditure (ESA2010), Final Consumption Ependiture, DG ECOFIN AMECO, Estimate,

% of GDP, Market Prices

Sweden Norway Finland Denmark


To get an overview of public spending historically, and the outlook for the next few years, we look at government spending as a percentage of GDP for the Nordic countries. There is only a discernible increase in Sweden, and that, in turn, is no more than half a percentage point or so. Based on current forecasts for public spending (including spending on migration) and GDP, the net impact on public finances from migration costs is not a major issue in the Nordics in the short term. It is notable in Sweden, but clearly not a major issue in an overall macroeconomic context.

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Neither is it a major issue from a funding or national debt point of view. We note that government debt as a percentage of GDP is forecast to rise for all four Nordic countries in 2016E-18E, but only very modestly in Sweden and Denmark. Debt to GDP looks set to rise more sharply in Finland and Norway, but this is not driven by migration costs. It is owing to the general macroeconomic environment, with a low oil price hurting the Norwegian economy, and the Finnish economy continuing to suffer its multi-year trend of pressure from weak paper and metal industries as well as weak trade with Russia.

Nordic countries government debt as % of GDP, 1970-2018E

0

20

40

60

80

100

1970 1976 1982 1988 1994 2000 2006 2012

Percent

General Government, Gross Financial Liabili es, % of GDP, OECD Economic outllok, Es mate, Calendar Adjusted, SA

Denmark Sweden Norway Finland


So how big an impact on GDP could the refugee inflows have in the Nordics in the short-to-medium term?

Short-term immigration impact is a GDP boost from higher public consumption in 2016E-17E...

We forecast that increased public consumption and resulting effects on employment will boost GDP growth very marginally, 0.1-0.2 percentage points, in Denmark, Norway and Finland in 2016E-17E. In Sweden, the corresponding boost is higher, some 0.5 percentage points.

GDP Growth, Nordic countries 2014-18E

Real GDP, % y/y 2014 2015 2016E 2017E 2018ESweden 2.3 4.2 3.3 1.7 1.9Denmark 1.3 1.0 1.0 1.5 1.7Norway 1.9 1.6 0.7 1.5 1.6Finland -0.7 0.2 1.0 0.8 0.6

Source: Nordea Markets

...petering out thereafter if refugee flows stay at resumed normal levels

In all four countries, we see the effects tapering off, with no significant further impact from 2018E. This is based on refugee flows into the Nordics slowing down dramatically after the refugee and asylum policy tightening in late 2015. Any demographically driven long-term benefits for the Nordic economies from migration and recent major refugee inflows would take place well beyond 2018E.

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Migration impact on industries and companies

Great needs have to be metWe know that the major refugee inflows are boosting public consumption, and thus also GDP growth, on the national level in the Nordic economies (especially in Sweden), but how does it work within the economy? Are there different implications for different industries and companies within those industries?

Inflow of migrants drives demand for accommodation, welfare services.

Very much so. But let's begin with the basics. Migration and big refugee inflows increase the population. The new arrivals may not have much spending power, or contribute to employment and hours worked and taxes paid – at least not in the beginning – but there is a surge in demand for services related to caring for them and processing their asylum applications.

In the short term, there is not a proportional boost to private consumption, or new demand for retailers, from the migrant contribution to the population. But there is a potential boost for urgent or critical private services, which migrants have some willingness and ability to pay for. One example is telecom services.

And there is a more than proportionate surge in demand for social services and care related to refugees as the newest members of the population. Many have experienced trauma and need health and support services as a result. Many are children arriving without their families, and needing care and support from society. There are also great immediate requirements for shelter and accommodation, as the migrant population has by far outgrown the reception capacity of the Nordic immigration authorities. Interestingly, there are quite a few private operators within the public services sectors in the Nordic countries.

The second wave: infrastructure for reception, processing and integration of migrants boosts public services and real estate

Perhaps most significantly, there is the potential "second wave" of needs: the infrastructure necessary for receiving, processing and integrating greater numbers of migrants going forward. Even if the spike in refugee flows in 2015 has now normalised, there is a massive, recently added population of extra refugees that needs to be worked through and assimilated. And, as we argue in the section on the outlook for future refugee flows, there could be new surges in the years ahead.

This second wave relates both to general needs linked to increased population growth and to needs specifically related to actual immigration. Both are strongly oriented towards construction and real estate.

General needs would include an obvious need for schools, preschools, hospitals, affordable housing and community services premises. In the end, the needs also include general infrastructure such as roads and utility systems to link new developments to existing grids and areas. Some of these needs have become particularly apparent in countries or areas where there was already a shortage of housing.

Specific needs related to the population boost from migration would typically be affordable housing. There are shortages of housing of a standard and cost suitable for the spending power of migrants. There are many obstacles to a quick fix, but construction and real estate companies with a major presence in this segment may have a role to fill and might also find commercial opportunities in it. The same applies to public services real estate. The capacity catch-up need is greater for real estate with public use such as immigration processing and accommodation, schools, health centres, prisons, police and fire stations, courts, etc.

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We will review this further below, and in greater detail in our interview with Nordea Markets' Construction & Real Estate analyst Niclas Höglund in the next section.

Potential real estate hot spots: affordable housing and public services office buildings

To shed some light on potential industries and companies that might be particularly affected by refugee flows and migration, and which could offer potential opportunities for investors and stakeholders with exposure to them, we find three possible hotspots: public services; telecoms; and construction and real estate.

These three are not meant to be a comprehensive sample of where exposure could be found; rather, we consider them to be obvious areas, worthy of being reviewed. This is based on a qualitative approach using input from equity analysts and other Nordea Markets colleagues, and also on a very simple screening for geographical relevance: which of the public equities covered by Nordea Markets derive a majority or all of their revenue from the Nordic countries?

There are many Nordic private operators in social services, health care and schools

Highlight 1: Social services, healthcare and schoolsThis highlight area may seem counterintuitive at a first glance. Surely the public sector takes care of this? Broadly speaking, yes, but the Nordic countries have, to varying degrees, been pioneers in deregulation, allowing private operators to enter the markets for social services and related healthcare, including elderly care, disability assistance, healthcare staffing and private medical services. Another important area with private operators is schools.

To give a taste of the Nordic universe of private social, health and educational service providers, we list a sample below, including publicly listed and privately owned companies, the latter both with private equity and family owners.

Sample of Nordic private operators in public services

Company Country Business OwnershipRevenues

2015 EURm

Nordic share of

revenues

Market Cap EURm

Time of IPO

Capio Sweden Health care Listed 1,442 54% 700 Jun-15Attendo Sweden Social services, health care, staffing Listed 1,055 100% 1,379 Nov-15Aleris Sweden Social services, health care Investor AB 913 100% - -Humana Sweden Social services Listed 604 100% 436 Mar-16Ambea Sweden Social services, staffing Triton & KKR 465 100% - -Norlandia Norway Social services, patient hotels, preschools Private/Family 333 100% - -Forenede A/S Denmark Social services, facility services Private/Family 328 100% - -Frösunda Omsorg Sweden Social services HG Capital 306 100% - -Pihlajalinna Finland Social services, health care Listed 213 100% 332 Jun-15Internationella Engelska Skolan Sweden Schools Listed 193 97% 291 Sep-16Kunskapsskolan Sweden Schools Private/Family 110 100% - -

Source: Company data and Nordea Markets

Of the companies in this sample, only Capio does not offer pure (or almost pure) Nordic business and revenue exposure, since it has private healthcare activities on mainland Europe as well.

All of the others have businesses with major exposure to public-service-related needs that are likely to be significantly affected by the recent surge in the immigrant population in the Nordic region. In that respect, they are potential plays on refugee and immigration trends, both during the short-and medium-term assimilation of the refugee flood of 2014-15, and in the longer term, for any future major refugee flows.

Of the 11 companies in our sample, five are listed and have investable equity, while the others are private and may or may not go public at some point. We nevertheless believe it is worthwhile to include them in our sample to give a fuller illustration of a significant universe of private operators.

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Despite political risks regarding private players in public services, five in our sample have carried out IPOs in the past 18 months

We note with interest that all five public companies in the sample have been stock exchange listed within the past 18 months, in spite of some investor concerns regarding political risk. In the past few years, there has been some bad publicity surrounding private operators in the welfare sector, owing to financial or operational mismanagement. There have been stories of mistreatment of residents in elderly care homes, and a chain of private schools went bankrupt, leaving students without a school to attend at the start of term. This has brought political attention to the issue of running welfare sector businesses for profit, leading to some political calls for regulation and restrictions for such operators. There is currently no significant new legislation in the pipeline, but the political debate continues.

All five IPOs were successful despite any political question marks, suggesting that equity investors considered these businesses to have interesting prospects regardless of any political risks, at least at the valuations at which they were offered to the market.

Highlight 2: TelecomsThis is a sector that appears in the spotlight for potential impact from migration and has a strong local bias. Most, but not all, Nordic telecom operators derive the bulk of their revenue from their Nordic home markets.

Nordic telecom operators ranked by their Nordic share of revenue

Company CountryRevenues

2015 EURm

Nordic share of

revenues

Market Cap EURm

TDC Denmark 3,265 100% 4,299ComHem Sweden 545 100% 1,584Elisa Finland 1,570 91% 5,432Telia Sweden 9,430 75% 17,481Tele2 Sweden 2,928 47% 3,521Telenor Norway 13,352 34% 23,263


Even a slight boost to organic growth can make a big difference for a telecom operator

We would not point to any immediate impact from migrants on Nordic telecom operators, at least not of a magnitude that would halve or double earnings per share. This is not the point. However, the business model of these operators has significant operating leverage. There are arguably significant margin improvement opportunities for them from working with their cost bases. Digitisation and optimising use of capacity in networks can offer great benefits. On top of this, top-line growth inevitably has a very major impact on profitability. The difference between an organic growth rate of a mere 1% and -1% can be huge in terms of impact on profitability.

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Mobile subscriber net intake in Sweden (thousands) by operator for 2012 to Q2 2016


For that reason alone, we consider it worthwhile to highlight mobile subscriber intake trends for Nordic operators. We focus on the example of Sweden, where the refugee inflow in 2014-15 has been by far the greatest, both in absolute numbers of refugees and as a share of the incumbent population.

Tele2 seems to have a (pre-paid) subscription offering and distribution suited for migrants

We can see in the chart above that there was a notable spike in new mobile subscribers for Tele2 in late 2015, when refugee flows into Sweden peaked. We believe this relates to Tele2 having the most suitable subscription offer for refugees, thus capturing the lion's share of new (immigrant) subscribers.

Tele2 offers prepaid subscriptions under its Comviq brand. These have several key advantages for newly arrived migrants and refugees:

Low prices, especially for traffic to Syria, Afghanistan, Eritrea and Sudan.Wide availability of prepaid subscription packages through Pressbyrån, 7-Eleven and other kiosk chains.No need for a Swedish national insurance/ID numbers to subscribe.

In our view, Tele2 still holds pole position in this space. Other Nordic operators have not introduced any matching offering that would be equally compelling for migrants. There are virtual operators and other discount brands of competing Nordic operators that offer even lower prices to key destinations than Tele2's Comviq, but these all lack the distribution of subscriptions through kiosks. Such distribution is time consuming and costly to build up.

We leave the reader with the thought that Nordic telecom operators have potential positive exposure to immigration-driven population growth, and that Tele2 is the operator that stands out as having the most obvious potential benefit because its offering is geared to that growing subscriber category. That Tele2 derives only half its revenue from the Nordic region is outweighed by its actual Nordic revenue exposure being more tilted towards this particular growing segment.

For a closer look, we refer to our Telecoms analyst Stefan Gauffin's Tele2 research report Winner on immigration published on 11 December 2015.

Nordea Markets 29


Highlight 3: Construction and real estateIn 2015, the top 50 real estate companies in Sweden (where migration has had by far the biggest impact in recent years) represented a total property value of nearly SEK 1,400bn and total space to let of close to 70 million m2, according to Swedish industry magazine Fastighetsvärlden.

Listed companies represent one-third of these companies, at more than SEK 439bn in total property value.

The top companies with a strong focus on community service properties are Hemfosa, Hemsö and Rikshem, although we argue that all real estate companies with office or residential space could see a positively impact from migration through increased public spending (more space) and indirect effects from demand for new residential space.

The key differences between listed and non-listed companies are linked to more residential exposure among the non-listed, mainly municipally owned, companies. Residential space represents 37% of all real estate companies, versus only 15% among the listed ones. We present the top 20 companies (including listed Hemfosa and Hemsö) and their statistics below.

The biggest Swedish real estate companies in 2015 (Rikshem, Hemfosa and Hemsö are

particularly exposed to migration)

Reported Property Value 2015 % space

Rank Company SEK bn Type Residen. Office Retail Other

1 Vasakronan 103.0 Not listed 2% 75% 13% 10%2 Akademiska Hus 66.6 Not listed 0% 14% 0% 86%3 Castellum (incl Norrp.) 62.6 Listed 1% 49% 11% 40%4 AMF Fastigheter 46.0 Not listed 0% 79% 15% 7%5 Skandia Fastigheter 43.3 Not listed 27% 25% 27% 20%6 Svenska Bostäder 42.9 Not listed 77% 5% 3% 16%7 Stockholmshem 38.5 Not listed 89% 3% 2% 6%8 Fabege 38.1 Listed 1% 71% 7% 21%9 Balder 37.6 Listed 56% 21% 7% 16%10 Rikshem 33.1 Not listed 69% 5% 0% 25%11 Wallenstam 32.1 Listed 44% 21% 11% 23%12 Akelius 31.7 Not listed 93% 3% 4% 1%13 Poseidon 31.7 Not listed 94% 0% 0% 6%14 Hufvudstaden 31.7 Listed 0% 45% 26% 29%15 Atrium Ljungberg 30.8 Listed 0% 54% 44% 3%16 Fortifikationsverket 30.0 Not listed 0% 0% 0% 100%17 Wihlborgs 28.6 Listed 0% 43% 8% 48%18 Familjebostäder 28.6 Not listed 88% 5% 3% 4%19 Hemfosa 26.0 Listed 0% 38% 6% 56%20 Klövern 25.0 Listed 0% 46% 9% 45%21 Hemsö 23.6 Not listed 0% 0% 0% 100%22 Alecta 23.5 Not listed 6% 51% 35% 8%

Top 50 1371.3 37% 24% 7% 32%Listed 439.2 15% 40% 13% 33%Not Listed 48% 16% 4% 32%

Source: Fastighetsvärlden and Nordea Markets

See our interview with Nordea Equity & Credit Research Construction & Real Estate analyst Niclas Höglund in the following section.

Nordea Markets 30


Interview – Migration, housing and construction

Below is an interview with Niclas Höglund, Senior Analyst in Construction & Real Estate at Nordea Equity &

Credit Research.

JT: In very simple terms, how would you describe the Nordic real estate markets today – weak or strong? Are there major differences between commercial and residential real estate, or between individual countries?NH: There is no doubt that the Nordic real estate markets, in particular Sweden and Norway, are very strong, helped by low interest rates that have gradually supported earnings and strong growth, particularly in Sweden. Altogether this supports higher asset values. Both commercial and residential markets are supported by these factors. Residential rental properties have also benefited from rising rents during the past couple of years, linked to rental increases in the regulated market, renovation investments and development. Commercial properties are more mixed, with strong demand for central business district rentals, in particular for major cities such as Stockholm and Gothenburg. Together with lower property yield assumptions, this has boosted asset values. The key risk for both asset classes lies in rising costs – for residential rentals linked to property management and for commercial rentals linked to vacancies.

JT: Similarly, how would you describe the current Nordic construction markets? Any specific strong or weak spots?NH: Demand remains very favourable for construction in general, driven by delayed investments in residential development and pending demand for infrastructure investments. The obvious weak spots relate to project profitability, low entry barriers in the industry and the lack of purchasing power despite strong demand. We still fear loss-making projects in this favourable market. Cost inflation is capped by the availability of foreign blue collar workers, which should enable continued solid growth in the coming years. Development remains the strongest spot, helped by solid asset pricing growth over the past few years, supporting strong gains and enabling further project starts.

JT: Before the massive surge in refugee flows into the Nordic region in 2015, was there a shortage of residential housing in the Nordic countries?NH: Vacancies were not a major issue for residential rental properties in Sweden even before 2015, partly helped by a low supply of residential starts over the past ten years. Production has been stable at a higher level in Finland, Norway and previously Denmark, which has created pockets of vacancies and pressure on rents.

JT: How could the big refugee inflow affect the Nordic residential housing sector? Could it raise demand? Could developers and contractors benefit from this?NH: Activity levels for both construction and real estate companies are strongly linked to the general GDP and, more importantly, growth in employment. Increased pressure on the authorities, particularly the Swedish Migration Agency, has created pockets of growth opportunities linked to temporary housing and refugee camps. Costs for these temporary solutions are high, however, and lead times in Sweden are very long because of detail-planning permits. Therefore, the sector will likely benefit from higher demand over the next years. The most obvious demand stems from affordable housing rental properties, but the main challenge will likely be linked to the speed and magnitude at which people can find a job and thus support general employment growth.

Nordea Markets 31


JT: Apart from actual demand for housing, are there any other potentially increased needs which might affect the real estate and construction sectors, such as in commercial real estate or infrastructure?NH: I come back to employment growth again; in the short term, growth within governmental agencies will support general growth and demand for more space. We see these agencies moving into more modern and central locations to attract and keep employees, which acts as positive catalyst linked to renovation and newbuild investments.

JT: Which Nordic construction and real estate companies have significant exposure to potential business opportunities related to migration and the refugee spike of the past few years?NH: I see growth opportunities linked to governmental agencies and temporary housing investments, ie companies focused on community service properties. Hemfosa's properties are focused on many of these agencies and have them as tenants, as do several other listed real estate companies, such as Wihlborgs and Castellum. All of the companies benefit in the short term from higher general activity supporting GDP. In the medium term, companies exposed to growth regions with employment opportunities for refugees could potentially see an acceleration of demand and production of housing developments, especially condominiums and rental housing.

JT: Are there companies in the sector seeking to position themselves for migration-related opportunities? Do they communicate this to investors? How do you see the views and expectations of investors today?NH: Most of the sector focuses on longer-term opportunities and growth factors, and I would say most companies are less interested in the temporary boost to demand from migration spikes. Community-service property owners such as Hemfosa, among other listed companies that we cover, expect the outsourcing trend in education and care facilities to boost growth, which in a sense will gain further indirect support from migration in the medium term.

Nordea Markets 32


A financial angle – Sustainability bonds

Challenging times can make great catalysts for change. We have reviewed how the recent tidal wave of refugees into Europe and the Nordic region could affect the economy, different industries and various companies within those industries.

We have already seen that recent migration trends give rise to great needs in Nordic societies, and meeting them will require major investments.

In the short term, increased government spending on receiving, processing and caring for refugees needs to be funded. This can be through a combination of reallocating government expenses, cutting back in other areas to compensate for expenditure on refugees, or by raising taxes. And it can be taken straightforwardly through state budgets, funded by increased state borrowing. The exact mix varies for each Nordic country.

But what about corporates? Does the migration phenomenon give rise to any special considerations for funding for companies that are significantly affected? Potentially, yes. Not only would potential migration-driven growth opportunities typically mean new funding needs, but potential, new funding solutions are even being tried out.

Swedish real estate group Hemsö has set an example in issuing a Sustainability Bond

We think it suitable to highlight one specific example here: Hemsö, a listed real estate peer of Rikshem (whose acting CEO Sven-Göran Svensson is interviewed at the end of this report), pioneered the issuing of a sustainability bond in May 2016. This was a SEK 1bn five-year bond, issued under Hemsö's existing MTN programme and earmarked to fund three specific sustainability projects:

Renovation of a school and nursing home property, and completion of a new life science property, all with a Swedish "Silver" environmental classificationCreation of an experimental low-stress outdoor environment for said school and nursing property, with optimal learning characteristicsConversion of selected existing Hemsö properties into refugee housing.

The bond was earmarked for three sustainability projects, and aligned with Green Bond principles including social sustainability in addition to environmental aspects

Hemsö chose a broader approach with this bond, also including social sustainability in addition to environmental and energy aspects. An independent research and analytical institute vouched that Hemsö’s Sustainability Bond framework fully aligns with the Green Bond Principles and demonstrates several aspects of market best practice with regards to transparency and disclosure, such as impact reporting and management of funds.

What does this tell us? For one thing, corporates with business exposure to migration and refugees could potentially use this to drive an existing or new agenda to diversify into green and sustainability funding, with support from their banks.

Nordea Markets 33


Interview: Rikshem – Demographics in housing

Below is an interview with Sven-Göran Svensson from Rikshem. Mr Svensson is the current Head of

Property Management and was acting CEO from March to October 2016.

JT: Could you describe Rikshem's origins and profile?SGS: Rikshem is a privately held Swedish real estate group, jointly owned by AMF Pension and the Fourth National Pension Fund. The company was formed through an acquisition of the residential real estate portfolio of Vasakronan, Sweden's largest real estate group, in 2010. We are a commercial landlord and property developer with a clear commitment to society and the communities in which we operate. We aim to be a reliable, responsible and solid long-term partner to Swedish municipalities and government agencies.

JT: What does your business look like today?SGS: We have a nationwide real estate portfolio with a current reported value of SEK ~35bn, split 64% residential and 36% public use properties. Residential includes student housing. Our public-use property portfolio is mostly nursing homes, but also some schools. In total, our portfolio represents ~26,000 homes. We are not a listed company, but we are active in both short- and long-term capital markets funding, with a SEK 10bn certificate programme and a SEK 15bn MTN programme. The company has grown rapidly, with the real estate portfolio nearly trebling from SEK 12.8bn in 2011. In 2014, we commenced new housing development activities. This should add almost 700 homes by the end of this year, with close to another 1,000 planned for 2017-18.

JT: How does your profile translate into a strategy and how does it affect your business model?SGS: Rikshem started off as a pure residential real estate company. When demographic analysis showed the potential in public-use properties – like nursing homes – we were an early mover in acquisitions of both housing and public-use properties from municipal owners. Our strategy is to have a strong, local presence in selected municipalities nationwide, which have both economic growth and a broad political aim to develop housing and public-use properties with long-term private partners. We have identified 60 out of Sweden's 290 municipalities where we see this. Our owners have set a required rate of return of 5% for us. This is somewhat lower than for peers, but reflects the long-term and stable focus of our business model. We have many long rental contracts in our portfolio, often ten to 20 years.

JT: Would you say that Rikshem started with these new developments fairly late in its life as a company, only two years ago?SGS: We have been quite active in generating development rights from existing land in our current real estate portfolio. We sometimes say that we could develop "half another Rikshem" with our development rights. Lead times for projects are long in Sweden, however, with the process for development project permits starting now, having typically been granted up to two parliamentary elections ago.

JT: Has the surge in migration to Sweden in the past few years affected your business?SGS: In the short term, soaring demand for accommodation has led to higher utilisation of housing in our properties. Existing tenants have taken in freshly arrived compatriots. This has increased wear and tear and in some cases made it necessary for us to increase resources, eg for waste collection. But it has also in some cases made tenant associations accept rent increases to compensate for greater maintenance burdens. We are

Nordea Markets 34


trying to assist municipalities by making any additional housing, that we can find and utilise, available for the temporary accommodation of refugees. There is some short-term positive impact on the utilisation of our existing properties from the great migration-related needs for housing.

JT: Are there long-term effects as well?SGS: There could be long-term effects. Our business aims to cater for a growing and ageing population; migration has boosted population growth, particularly in recent years. Our real estate portfolio includes areas where many migrants live, so we could benefit from that part of the population growing the fastest. But project lead times are long, so housing needs driven by migration should translate into housing demand and occupancy gradually over time. It is not only about adding capacity, it is also about how we use existing housing. There are some regulations and incentive structures standing in the way of making room for more tenants in the same buildings.

JT: Is Rikshem's profile of being a responsible, long-term partner and landlord a necessity or a competitive advantage?SGS: It is a core part of our identity and it defines how we do business. We have a specific policy of being a very locally visible landlord, with decentralised regional property management organisations. We have a range of initiatives aiming to support underprivileged tenants in our areas, particularly youths. These initiatives include summer work and internships, mentor schemes and homework assistance – the latter through supporting a charitable foundation financially. We like to create role models and success stories for individuals. We sense that all this gives us an advantage because we are seen as a trusted and preferred partner in negotiations and tenders. But there are challenges as well. We can be at a disadvantage to competitors in rent negotiations, where peers with a more "strictly commercial" corporate image can be more ruthless. They may have less image or reputational risk than us.

JT: Are there any indications that migration-related urgent housing needs could speed up the processing of building permits or development project lead times?SGS: We are seeing that the political will is typically there. Municipalities see the needs and are keen to find solutions. But processes are slowed down by civil servants, or sometimes by a lack of sufficient numbers of civil servants to process applications and projects. Various control functions follow procedure and have their say. The political leadership cannot bypass them. There are appeals processes for potentially affected residents and neighbours, who have opinions on new developments. This can all surely be improved, but not through a quick fix.

Nordea Markets 35


Rikshem's real estate portfolio by location, % of portfolio

Source: Rikshem

Nordea Markets 36

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Equity recommendation structure (absolute ratings)

Potential to target price (X)

Buy X > 10%

Hold 0%< X < 10%

Sell X < 0%Our target price is the price at which we believe the shares should trade if fundamentally fairly valued on the recommendation publication date. We calculate our target price by weighting DCF, DDM, SOTP, asset based and other standard valuation methods, and applying appropriate premiums/discounts and/or other relevant adjustments. Our target prices are sensitive to changes in valuation assumptions, of which growth, margins, tax rates, working capital ratios, investment-to-sales ratios and cost of capital are typically the most sensitive. It should be noted that our target prices would change by a disproportionate factor if changes are made to any or all valuation assumptions – this is due to the non-linear nature of the standard valuation models applied (mentioned above). As a consequence of the standard valuation models we apply, changes of 1-2 percentage points in any single valuation assumption can change the derived target price by as much as 30% or more.

Dividend payouts are included in the target price.

All research is produced on an ad hoc basis and will be updated when the circumstances require it.

Previous equity rating changes in the past 12 months

See individual company reports for information on the most recent changes in recommendations.

Distribution of equity recommendations

Recommendation % distribution

Buy 49%Hold 29%Sell 22%As of 1 October 2016

Distribution of equity recommendations (transactions*)

Recommendation % distributionBuy 69%Hold 18%Sell 13%As of 1 October 2016

* Companies under coverage with which Nordea has ongoing or completed public investment banking transactions

Equity risk rating

As a measure of the company’s operational risk, we apply a risk rating scale of 1-5 where 1 is the lowest risk and 5 is the highest. The risk rating is calculated using a weighted average of earnings/cash flow predictability, earnings quality and backward-looking asset beta. For the most illiquid stocks, the risk rating is also adjusted for liquidity risk. The risk rating is then converted to asset beta and used to calculate the cost of capital. It is thus implicitly included in our fair value calculations.

Market-making obligations in shares or derivatives and

other significant financial interest

Nordea Markets has market-making obligations in Aspo, Assa Abloy, Boliden, DNB, DSV, Danske Bank, Elekta, Gjensidige Forsikring, Kinnevik, Munksjö, Norsk Hydro, Novo Nordisk, Rapala, Skanska, Statoil, Storebrand, Telenor and Vestas Wind Systems. Nordea Markets has no market-making obligations in other companies in the coverage universe.

Bond recommendation definitions

Outperform: Over the next three months, the fixed income instrument's total return is expected to exceed the total return of the relevant benchmark.

Market perform: Over the next three months, the fixed income instrument's total return is expected to be in line with the total return of the relevant benchmark.

Underperform: Over the next three months, the fixed income instrument's total return is expected to be below the total return of the relevant benchmark.

All research is produced on an ad hoc basis and will be updated when the circumstances require it.

Distribution of bond recommendations

Recommendation Count % distribution

Outperform 120 29%Market perform 256 62%Underperform 39 9%Total 415 100%As of 1 October 2016

Distribution of bond recommendations (transactions)*

Recommendation Count % distribution

Outperform 37 23%Market perform 106 67%Underperform 16 10%Total 159 100%As of 1 October 2016

* Companies under coverage with which Nordea has ongoing or completed public investment banking transactions

Investment banking transactions

Nordea has over the previous 12 months been lead or co-lead manager in a public disclosed offer of financial instruments issued by: A.P. Møller - Mærsk, ABB, AcadeMedia, Ahlstrom, Aker BP, Arla, Atria, Attendo, Avance Gas, Avanza, B2Holding, BKK, BW Offshore Ltd, Bavarian Nordic, Bilia AB, CGG, Citycon, Com Hem, DNA, DOF, DONG Energy, DSV, Danske Bank, Detection Technology, Eidsiva Energi, Elisa, Fortum Värme, GasLog LTD, Gjensidige Forsikring, Golden Ocean, Hoist Finance, Hypoteekkiyhdistys, ISS, Klarna AB, Konecranes, Kungsleden, LKAB, Landshypotek, Lindorff, Lyse, Millicom, NKT Holding, Nets, Nortura SA, OBOS BBL, Ocean Yield, Odfjell SE, Olav Thon Eiendomsselskap, Oma Säästöpankki Oyj, Oriola-KD, Orkla, Outokumpu, Outotec, Petroleum Geo-Services (PGS), Polygon, Posten Norge, Prosafe SE, Protector Forsikring, Pöyry, Rikshem, SCA, SSAB, Sagax, Sampo, Sandvik, Sanoma, Scandinavian Tobacco Group, Seadrill, Skandiabanken ASA, Sparebank 1 Nord-Norge, Sparebank 1 SMN, Sparebank 1 SR-Bank, Sparebanken Vest, Sparebanken Øst, Steen & Strøm, Stolt-Nielsen Ltd, Stora Enso, Swedish Match, TVO, Technopolis, Teekay LNG Partners LP, Teekay Offshore Partners LP, Tele2, Tokmanni, Topdanmark, Tryg, TrønderEnergi, VVO Group, Vapo, Vasakronan, Verisure Holding, Verkkokauppa.com, Vestas Wind Systems and Volvo.

Analyst shareholdings

Nordea Markets equity and credit analysts do not hold shares in the companies that they cover.

No holdings or other affiliations by analysts or associates.

Material interest held by the issuer in shares issued by

Nordea

Sampo owns 21.3% in Nordea (as of 1 October 2016).

Completion date

11 November 2016, 09:28 CET

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