Norway sovereign fund slows expansion in emerging markets

PUBLISHED : Friday, 22 August, 2014, 1:21am
UPDATED : Friday, 22 August, 2014, 1:53am

Norway's US$880 billion sovereign wealth fund, the world's largest, is slowing its expansion into emerging markets as it scales back a two-year mission to tap into the fastest-growing markets.

"We are gradually picking up some new markets but at a less rapid pace than we did at the beginning of the year," said Yngve Slyngstad, the fund's chief executive.

The fund has been pouring into emerging markets since 2012, when it won permission to step up its investment. At the time, the government approved a plan to reduce holdings in Europe to 41 per cent from 54 per cent of the portfolio.

Slyngstad said the fund had not been trading Russian assets over the past eight months as it monitored the effects on the economy of sanctions. Norway, which is not a European Union member, has chosen to back United States and EU trade restrictions against Russia.

"Our investment strategy for any country that sees the kind of turbulence, geopolitical risk, whatever you want to call what we have at the moment - we will neither be buying nor selling," he said. "This isn't a situation that lends itself to our set strategy of investing more when we see volatility."

After getting its first capital infusion 18 years ago, the fund has steadily added risk, expanding into stocks in 1998, emerging markets in 2000 and real estate in 2011 to safeguard the wealth of the world's seventh-largest oil exporter.

At the end of June, 9.9 per cent of the fund's stocks and 13.4 per cent of its bonds were in emerging markets.

The investor still saw China as a target for more purchases and would try to raise holdings under the country's qualified foreign institutional investor quota programme, Slyngstad said.

"We're investing in countries roughly in proportion to the size of the underlying economy. On that relative basis, we are underinvested in China," he said.

While the fund's investment in China accounted for 2.4 per cent of the equity portfolio and was its largest stake in emerging markets, Slyngstad said holdings in the country were "miniscule relative to the size of its economy".

Under Chinese rules, only overseas institutions with licences and quotas by two different regulatory bodies can invest in A shares. The combined approved quota of about US$86 billion is less than 3 per cent of the market value of locally listed companies.