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Posted inNORDICSFixed Income

market insight Norway q3 2014

They are also significantly more upbeat about macroeconomic prospects than the European average alt=''(see chart 1), though it must be noted that they were polled before the oil price started to fall considerably this month.

Emerging market equities

Early adopters

In one aspect though, Norwegian fund buyers are very similar to other European fund selectors: their enthusiasm for emerging market equities. While Norway’s investor community is fond of emerging market equities almost by default, they have this year been joined by almost the entire continent. A year ago, while Pan-European emerging market sentiment was hovering around an all-time low, 43% of Norwegian fund selectors were still planning to buy more. This has now increased to 60%, slightly above the Pan-European average. Emerging market equities have consequently strengthened its lead as the most popular asset class in Norway.

Frontier markets also have some fans in Norway, but the asset class is less popular than in the other Nordic countries. About half of Norwegian fund selectors are not invested in frontier markets, a much larger percentage than in Sweden, Denmark and Finland. The share of fund selectors planning to increase allocation is also smaller, at 27%.

Global equities possibly are the most popular equity asset class among Norwegian investors though. According to Verdipapirfondenes Forening (VFF), the branch organisation of Norwegian asset managers, institutional investors allocated close to NOK10bn (€1.2bn) to Norwegian-domiciled global equity funds in the first nine months of 2014.  

Investment grade bondsalt=''

All or nothing

Despite record-low yields, government bonds are more popular than ever with Norwegian fund selectors. One in five interviewees said they will increase their allocation in the next 12 months, more than anywhere else in Europe. However, an even larger group of fund selectors does not invest in the asset class at all. Only in Sweden the non-invested are more numerous.

The relatively high proportion of government bond buyers might be explained by the fact that Norway’s fund selectors predominantly invest in Norwegian government bonds. Norwegian government bond yields are significantly higher than those of the Eurozone’s core countries, with 10-year bond yields currently slightly above 2%.

Corporate bonds enjoy a similar relative popularity. More than a quarter of Norway’s fund selectors intend to increase allocation, compared to a Pan-European average of only 7%. Still, sentiment is net negative with 33% planning to decrease exposure.

High yield bonds


Ready to be loved again?

High yield bonds is one of the least loved asset classes in Europe, though its popularity might rise again on the back of widening spreads and a slight re-rating of the asset class observed over the past weeks. In Norway though, high yield is more popular than anywhere else in Europe, just like the other developed market fixed income asset classes. More than a quarter of our sample said they will increase allocation, compared to a Pan-European average of only 11%. Still, 40% will decrease allocation.

Developed equities

On hold for now


When Norwegian fund buyers were surveyed in September, developed equity markets were at all-time highs and they already seemed wary of a correction. For US equities, the status quo even achieved an absolute majority (see chart ..), while EU equity sentiment was hardly net positive. It seems not a risky bet to say that developed equity sentiment is even more depressed now, after the expected market correction indeed occurred over the past weeks. EIE’s historic sentiment data for Norway, though, suggest that a large-scale sell-off is not likely to occur. The number of fund selectors saying they will decrease allocation to European equities has never been higher than 22%.

Emerging market debt

An unfamiliar asset class

Norwegian fund selectors still see some value in developed market fixed income, and much more so than their European counterparts. That might explain why they are not particularly engaged with emerging market debt. More than half of Norway’s fund buyers are not invested in emerging market government bonds, compared to a Pan-European average of just 18%. Norway is the only European country where developed market government bonds has more buyers than their emerging market equivalent.

Emerging corporate debt is slightly more in fashion, with 47% of interviewees not engaged with the asset class. And of those who do invest, most want to increase their allocation. The amount of buyers is on par with the number for high yield bonds at 27%. This is, for a change, in line with the other Nordic countries.


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