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Icelandic fund buyers plan to raid the world

The announcement by the Icelandic government last week that it is planning to lift the capital controls on the island can already now be seen as a watershed moment for local fund selector polls, at the Expert Investor Iceland held last week in Reykjavik revealed.

Since 2008, Icelandic investors have been all but cut off from international markets, as they have since the not been allowed to convert their Icelandic krona into foreign currency. Consequently, they can’t increase their foreign equity holdings, which currently stand at about 20-25% of total assets.

So when our researcher visited Reykjavik in April, she found that less than two in 10 Icelandic fund selectors were planning to increase their allocation to global equities in the next 12 months. Now, this has shot up to a staggering 70%. For European equities, the increase in buying intentions has been more modest, from 27% up to 44%, but it is still significant.

 However, the share of buyers has not changed much for emerging market and US equities. Even though Iceland’s fund selectors will soon be in the position to increase their positions in these two asset classes, they are not really warming to that prospect. On the other hand, neither are Iceland’s fund selectors intending to decrease their exposure. This is probably due to the fact that they are, contrary to many of their European peers, already underweight the asset classes as they haven’t been able to increase exposure in the past seven or so years.  

Thumbs up

Perhaps unsurprisingly, 95% of fund selectors attending Expert Investor Reykjavik applauded the decision by the Icelandic government to start lifting the capital controls gradually, probably as of next year.

 “There is absolutely no way we could continue with these capital controls,” says Gardar Jon Bjarnason, CIO of pension fund Joklar Verdbref, articulating a common opinion among Icelandic fund selectors, who already had voted overwhelmingly in favour of lifting the capital controls at last years’ Expert Investor Iceland. The relaxation of capital controls does not mean Iceland’s central bank will loosen its grip on the currency though. “In the end the currency should be allowed to fluctuate, but I think the central bank will try to keep it stable in the next few months or even years, because otherwise [if it depreciates too much] there will be a problem with inflation,” says Bjarnason. 

Click here to see a full breakdown of the delegate voting results from Expert Investor Iceland.

Click here to see a slideshow of photos taken during Expert Investor Iceland.

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