NORWAY FUND SOUNDS ALARM BELLS
CEO of world’s biggest sovereign wealth fund says heyday of cross-border trade is behind us
HE man running the world’s biggest sovereign wealth fund says there’s indication that global trade is suffering from something more serious than a temporary slowdown.
Yngve Slyngstad, chief executive officer (CEO) of Norges Bank Investment Management, as the fund is known, says the heyday of cross-border trade is probably behind us.
“The question investors are asking themselves is if the easy wins already have been made,” said Slyngstad in an August 29 interview from his office on the top floor of Norway’s central bank here.
“The global supply chains have in a way had a one-time gain primarily through outsourcing of multinationals to China.”
Norway’s wealth fund owns 1.3 per cent of globally listed stocks, spread out over almost 80 countries. And with interest rates at record lows, the investor has cut its long-term return expectations to about three per cent from four per cent, even after winning approval from parliament to raise its share of equities to 70 per cent from 60 per cent.
Slyngstad, who became CEO in 2008 just as the global economy was sinking into crisis, noted that back then, the fund rode out the turmoil by dumping bonds and buying stocks.
“I don’t expect that we will act differently in any similar crisis in the future,” he said.
During a recent conference on globalisation, the fund’s chief strategist, Bjorn Erik Orskaug, suggested the world might be at an “inflection point” in trade, with shallower value chains and less cross-border production. And then there’s the protectionist agenda some governments are pursuing.
He said the wealth fund’s extremely long-term investment timeline allowed it to look past the noise coming from governments that come and go.
The fund will probably stay over-weighted in Europe, where it’s more of an active investor. But the only two economies that really matter were the United States and China, said Slyngstad.
The fund is also looking into making potential changes to its bond portfolio, based on gross domestic product weightings. The investor says that a growing correlation between global bond markets reduces the need for geographic diversification.
As the fund approaches US$1 trillion (RM4.27 trillion) in value, its stated goal is to safeguard today’s oil wealth for future generations of Norwegians. It has surged in size since its inception two decades ago, generating an annual return of 5.89 per cent.
Norway’s government last year started taking cash out of the fund for the first time to make up for lower oil revenue. Withdrawals are set to hit about 72 billion kroner (RM39.7 billion) this year, and remain at that level in coming years amid stricter fiscal rules.
The withdrawals from the fund were “significantly lower than our cash earnings”, said Slyngstad. “We are still net buyers in the market, we just aren’t reinvesting all the cash the fund is generating.” Bloomberg