Norwegian Pensioners Enter Bear Market

The Chinese stock market entered officially a so called “bear market” yesterday after the Shanghai Composite Index have  declined over 20% since the peak in November last year – and so did Norwegian pensioners with nearly 50% of its NOK 2,7 trillion pension fund invested in Chinese equities.

“Will we have a crash? That’s quite possible. China is trying to cool the speculation and that will have an impact on economic activity.”

Marc Faber

The Shanghai index has dropped more than 20 percent from a November peak, the definition of a so-called bear market, on speculation efforts to rein in the housing market will hurt earnings. The Norwegian Government Pension Fund have nearly 50% of its total assets invested in the Chinese stock market.

According to the annual records revealed by the Norwegian Government Pension Fund (also called The Oil Fund) it holds Chinese equities mounting to a total of NOK 1.277 billion as of December 2009.

The largest investments are made in the following sectors:

1. Financials

2. Basic Materials (Oil&Gas)

3. Consumer Goods and Health Care

Composite Shanghai Index 300 (ytd)

The funds total value is estimated to about NOK 2.700 billion. Norway’s Sovereign Wealth Fund owns nearly 2% of all stocks in Europe and 1% of all the shares in the world.

The chief manager, Yngve Slyngstad, said at a press conference in relation with the funds Q1 report last week that the portfolio is pretty much the same at the moment as it was by the end of last year.

The Norwegian Oil Funds exposure to the PIIGS countries is NOK 290 billion – over 10% of total assets.

The holdings of government bonds in Greece, Spain, Portugal and Italy is currently at about NOK 54 billion.

To Late To Sell

In an interview with the newspaper Dagens Næringsliv following last weeks reporting, Mr. Slyngstad says that fund sold as much as they could of the PIGS debt in the last months of 2009.

“We sold off government bonds from PIGS countries in buckets and buckets in autumn last year. Securities worth 80 billion kroner was placed in the market generally in October and November.  At the end of last year, the fund down to 54 billion in government debt from PIGS countries,” Mr. Slyngstad says.

He won’t take Ireland into his account for some reason.

“With the positions we have now, it is not possible to do anything. It is not possible for a fund of our size to do anything. It is too late to sell. We are locked in,” he says.

Shanghaied In Shanghai?

Nobody has bothered to ask the man who manages almost NOK 3 trillion of Norwegian tax payers money how they’re doing with their investments in China.

I have just gone over the figures one more time and calculate the total holding of Chinese shares to a massive NOK 1.277 billion – nearly 50% of the funds total assets.

Bonds – sovereign and corporate – not included.

The Shanghai Composite Index (CSI 300) has declined 19 percent this year, the world’s third-worst performer among the 93 gauges tracked by Bloomberg, after surging 80 percent in 2009.

Only Greece and Cyprus have done worse.

Shanghai will impose a series of regulations, including residential property taxes, to curb real-estate prices in the financial hub as early as this month, the Shanghai Securities News said today, citing unidentified people close to the government.

This may extend the slide of the Chinese stock market, as it probably will have a negative impact on Chinese companies income.

And the Norwegian peoples “piggy-bank” might suddenly find themselves in the same position with China as they now are in with the PIGS; not being able to sell because it will enforce the negative market trend.

In A Bear Market

This means that Norwegian pensioners are following the investors into a so called “bear market” in China.

About “bear markets”, Investopedia.com writes:

“A bear market should not be confused with a correction, which is a short-term trend that has a duration of less than two months. While corrections are often a great place for a value investor to find an entry point, bear markets rarely provide great entry points, as timing the bottom is very difficult to do. Fighting back can be extremely dangerous because it is quite difficult for an investor to make stellar gains during a bear market unless he or she is a short seller.”

Unfortunately, the Norwegian Government Pension Fund – Global, has to operate within the guidelines given by the Norwegian parliament; short selling is most certainly not an option.

Hit By Mother of “Black Swans”?

Several prominent economists, among them professor Nouriel Roubini  at New York University, is warning of a giant asset bubble in China, more or less as a result of the nations unprecedented fiscal stimulus.

“There is an overheating of the economy,” Roubini,  says on Bloomberg Television today.

“China should be tightening monetary policy, increasing interest rates and let its currency appreciate over time. They are too slow, they are not doing it fast enough.”

Legendary investors, like Marc Faber and Jim Rogers, are saying the same ting, although in a more direct way:

“The market is telling you that something is not quite right. The Chinese economy is going to slow down regardless. It is more likely that we will even have a crash sometime in the next nine to 12 months,” Faber said in a interview with Bloomberg Television in Hong Kong, May 3.

Jim Rogers started to warn of a bubble forming in the Chinese markets back in late 2008.

This video was uploaded on YouTube by The Jim Rogers Channel, August 7. last year:

There are even more disturbing information coming analysts with extended knowledge of China’s economy and politics.

Director of Research, Vitaliy N. Katsenelson, at Investment Management Associates, Inc. issued an update on his   analysis “China – The Mother of All Black Swans” in April 2010.

According to Mr.Katsenelson, this will be the consequences of a bursting Chinese bubble:

What happens in China doesn’t stay in China (not any more); it spills over to the rest of the world.

China will turn from a windin the sails of the global economy to its anchor.The impact will be felt in many, and unsuspected, places.

It will tank the commodity markets, commodity producers, and commodity-exporting nations.(Incremental demand from China collapses, oil prices follow, taking the Russian and Middle Eastern oil-centric economies with it). According to GaveKal Research, China accounts for 15% of Brazil’s exports (up from 1.5% a decade ago).

Demand for industrial goods will fall off the cliff.China consumes a lot of those goods –$550 billion worth annually (according to GaveKal Research).

Chinese appetite for our fine currency will diminish, driving the dollar lower against the renminbi and boostingour interest rates higher. No more 5% mortgages or 6% car loans.

Political instability in China is a possible outcome from a significantly weakening economy.

Here’s a copy of the updated analysis.

As for the Norwegian Pension Fund, they have now hired an army of risk analysts after being criticized for not having good enough risk management after the 2008 market crash.

But the thing is; when hit by a “black swan” – or a “fat tail event” – no risk analysis, mathematical model or advanced investment strategy is wort a shit…

Related by the Econotwist:

Here’s The REAL Norwegian PIIGS Exposure

Central Bank of Norway Raises Key Interest Rate Again

Warnings Agains Hong Kong Financial Fraud

Norwegian Labor Costs At Record High

Norway: A Mutated Dutch Disease

Norwegian Oil Explorer Files For Bankruptcy

Consumer Confusion Index At Record High

Evaluation Of Norwegian Monetary Policy

Norway’s GDP Fall For First Time In 20 Years

Norway Economic Update – “Partly Grim”

Fighting The Reality

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One response to “Norwegian Pensioners Enter Bear Market

  1. отлично написано, у автора прям талант