Norway was on track to achieve an annual growth rate second only to that of Australia in the developed world, and interviewees noted that the country’s economic and political stability had attracted considerable foreign inflows into local assets – boosting stock prices and the value of the krone against other currencies.
Yet this did not translate into a positive assessment of the global economy.
Indeed, Norwegian investors were in aggregate negative on the broad 12-month economic outlook.
One year later, the country’s prospects have “dimmed somewhat”, according to Helge Pedersen, global chief economist at Nordea, owing to its weakening housing market.
Other commentators additionally warn that Norway – the world’s tenth- and third-largest exporter of oil and natural gas respectively, according to the International Energy Agency – has become over-reliant on overseas purchasers of its natural resources.
Reflecting this, many of the Oslo-based wealth managers, pension funds, banks and family offices we consulted in September this year highlighted the trajectory of oil prices as a key concern.
Macroeconomic outlook
Positive consensus despite lack of clarity
Interviewees were also wrestling with other “known unknowns”, including the upcoming German elections, the timing of US tapering, and the identity of the new Federal Reserve chairman.
Closer to home, there were uncertainties surrounding Norway’s own looming election – a contest which led to the formation of a coalition between the Conservative and Progress parties in October – and pension reforms that aim to more closely align Norway’s employee and state systems from 2014.
Some investors said markets were in a temporary lull, and expected more volatility in the months ahead.
Yet, despite such worries, more than two-thirds of interviewees were upbeat on the macroeconomic outlook – one of the most strongly positive results recorded by Expert Investor Europe in 2013, and significantly above the level seen at last November’s Expert Investor Norway (see chart 1).
Western equities
US and European stocks are in demand
In line with this positive stance, many fund selectors planned to increase their stock allocations over the following 12 months.
They also revealed a clear shift in appetite for the major equity regions.
In 2012, a net two-fifths of Oslo-based investors expected to boost their emerging market exposure – while demand for European equities was comparatively weak, and a small proportion planned lower US weightings.
This year, appetite for Western stocks was resurgent, with significant percentages of interviewees expecting to increase their European and US allocations (see charts 2 and 3).
Emerging market stocks
Investor appetite has declined since last year
In contrast, our research indicates demand for emerging market equities has fallen significantly in Norway (see chart 4) – unlike in other Nordic countries, where appetite for EM stocks remained strong this year.
Some investors fretted about the impact of restructuring in the developing world – as economies shift from export-driven to domestic consumption models – in addition to continuing instability in the Middle East.
One wealth manager viewed the economic prospects of less-developed ‘frontier markets’ as more attractive than those of the larger emerging nations.
Global fixed income
Only riskier strategies will see inflows
Investor appetite for bonds was generally lower than for equities, and most fixed income sub-sectors are likely to see outflows.
Aversion to low-yielding Western government bonds strengthened during the past year, and a net 30% of our interviewees planned to reduce their weightings.
(Pension funds nevertheless remain heavily invested in domestic sovereign debt, with one of our interviewees holding an 80% allocation to Norwegian government bonds and the remainder in equities.)
Meanwhile, demand for developed world investment grade and emerging market government debt shifted from mildly positive to negative during the period (see charts 5 and 6).
Only riskier fixed income strategies are likely to see increased inflows over the next year, with high yield and emerging market corporate bonds both popular (see charts 7 and 8).
Norwegian appetite for both asset classes was above the European average recorded by Expert Investor Europe this year.
Absolute return
Interviewees upbeat on uncorrelated funds
There was also substantial interest in Ucits absolute return funds, with a net 30% of interviewees planning bigger allocations to such uncorrelated strategies over the following 12 months – broadly in line with expectation levels at last year’s Expert Investor Norway (see chart 9).
Simon Andersson and Will Jackson, members of EIE’s research team, collected the information in this document through a series of interviews with senior fund selectors and asset allocators, plus publicly sourced data.
For more information, contact Simon at simon.andersson@lastwordmedia.com or on +44 (0)20 7382 4477.
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