Daily Management Review

Norway's fund faces the threat of a trade war


08/21/2018


The world's largest sovereign investment fund, the Norwegian oil fund with a volume of $ 1 trillion, earned $ 20 billion in the last quarter thanks to investments in shares of oil and gas companies, from which he wants to ultimately give up. However, its long-term prospects are threatened by the global trade war, writes Bloomberg.



mroach via flickr
mroach via flickr
In April-June, the fund benefited from a rally in the US markets, helped by tax cuts. But, like many global investors, the fund warned about the negative impact of growing protectionism on the world economy.

"The prospect of increasing trade barriers is something that is important on everyone's agenda," said Trond Grande, deputy general director of the fund, "We can probably say that the growth of trade barriers or even wars would not benefit the fund".

The fund recorded a profit of 1.8% in the second quarter, earning 167 billion Norwegian kroner ($ 20 bln) after a loss during the I quarter.

The fund's return on equity was 2.7%, in real estate 1.9%. Yield of investments in bonds was zero.

"Shares of North American and European companies showed a positive trend in the [last] quarter, despite the prospect of increasing trade barriers," said Grande.

The fund lost 5.7% on investments in shares of developing countries. The yield of investments in Chinese equities was also negative (-4%).

The most profitable were investments in shares of oil and gas companies, which are proposed to be abandoned. Shares of financial companies led by Banco Santander SA showed the worst dynamics in the fund's portfolio.

"In the second half of the period, prospects for increasing trade barriers and weaker growth prospects in Europe, China and emerging markets had a negative impact," the fund said. "Political uncertainty in Italy has had a negative impact on European financial markets."

By the end of the Q2, 66.8% of the fund's funds were invested in shares. The share of investments in securities with a fixed yield was 30.6%. Another 2.6% of the fund's assets are invested in real estate, notes Bloomberg.

The Norwegian Oil Fund is one of the world's largest shareholders. It controls an average of 1.4% of shares traded on exchanges around the world.

The fund's largest investment in equities at the end of the second quarter was investments in Apple Inc., Amazon.com Inc. and Microsoft Corp.

The largest investments in fixed-income securities fall on government bonds of the United States, Japan and Germany.

Last year, the volume of the Norwegian oil fund reached $ 1 trillion.

In 2017, the government of Norway withdrew 61 billion kronor from the institution to sponsor public spending, compared with 101 billion crowns a year earlier. In 2016, the authorities for the first time were forced to make withdrawals due to a fall in oil prices.

However, thanks to the resumption of oil prices and increased revenues from oil sales, the government invested in the fund in June for the first time in almost three years.

source: reuters.com, bloomberg.com






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