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Categorized | Equities

Norway oil fund hit by volatile EM stocks

Posted on October 28, 2015

Yngve Slyngstad, chief executive officer of Norges Bank Investment Fund, stands on stage during a news conference in Oslo, Norway©Bloomberg

Norway’s oil fund revealed on Wednesday the extent of the impact of the market turmoil during the third quarter amid losses from Volkswagen and Chinese stocks.

Norges Bank Investment Management reported a 4.9 per cent loss for the period, while its chief executive warned that inflows from the government could dry up in the fourth quarter.

    The oil fund, one of the biggest equity managers in the world, was hit hard by the shakeout in Chinese stocks in the three months to the end of September, losing NKr273bn ($32.3bn), its third worst fall to date in krone terms.

    Its worst-performing investments in the quarter were VW — it lost NKr4.9bn following the carmaker’s emissions scandal — Glencore and Daimler.

    The value of its equity investments, which made up 59.7 per cent of the fund at the end of the quarter, fell 8.6 per cent in the period. Bond investments fared better, gaining 0.9 per cent.

    NBIM holdings in property, to which it is extending its exposure, returned 3 per cent. They made up 3 per cent of the fund by the end of the quarter, against its ambitions for 5 per cent.

    The fund had a market value of NKr7.019tn on September 30. The extent of the pressure it faced was offset by a weakening krone, which helped boost the fund’s value by NKr382bn after foreign denominations were translated.

    “We’ve had a reset of investors’ expectations of global growth during the course of this year,” Yngve Slyngstad, NBIM chief executive, told the Financial Times.

    “Although the macroeconomists almost every year . . . have revised downwards their initial expectations, this time it seems like the market has followed that quite directly.

    “The importance of China is of course obvious. It’s clear that it affects directly a lot of sectors we invest in.”

    Norway’s national income tracks the decline in crude oil prices, so the fund faced the prospect of capital outflows back to the government.

    Inflows in the third quarter were NKr12bn, making NKr29bn for the year so far. Typical annual inflows in the past have been closer to NKr240bn

    “It is quite likely that you will see a fourth quarter without inflows,” Mr Slyngstad said.

    “But it’s still a situation we are comfortable with . . . There isn’t any practical issue from the management of the fund with regards to a lower inflow.”

    Although the macroeconomists almost every year . . . have revised downwards their initial expectations, this time it seems like the market has followed that quite directly

    – Yngve Slyngstad, NBIM chief executive

    Andrew Parry, head of equities at Hermes Investment Management, said: “On first sight, this does seem to be quite a large negative return and could well reflect their deeper exposure to domestic markets, which are more sensitive to the oil price.

    “But one disappointing quarter doesn’t really mean anything for long-term investors unless you are going to panic and sell at depressed levels. The fund does not make that mistake — its strong governance structure stops them panicking.”

    The fund has come under pressure to divest from fossil fuel stocks. In anticipation of restrictions on its investments, it continues to sell out of coal miners and is talking to conglomerates about hiving off their coal interests.

    NBIM is already excluded from buying tobacco companies and many defence companies.