/ world today news/ The largest sovereign wealth fund in the world reported a record loss of 173 billion dollars in six months. Analysts attribute this to a spike in energy prices, misguided investment policies and a sharp drop in investment in Russian and Chinese assets. Why “petrol box” risks emptying”
Record losses
Norway’s sovereign wealth fund, which manages $1.2 trillion in assets, lost 14 percent of all investments in six months.
The World Oil Bank, as this financial institution is called, was founded in 1990 to invest windfall profits from the sale of black gold to ensure the well-being of future generations of Norwegians. In the first half of 2021, the fund earned $111 billion from stocks.
According to the head of Norges Bank Investment Management (NBIM), Nikola Tangen, the reasons for the losses are the tightening of monetary policy in the world, the situation in Ukraine and high inflation. According to him, in all sectors in the first half of the year, negative profitability was recorded – except for energy, where it was plus 13 percent due to the increase in the price of hydrocarbons and petroleum products.
Massive sale
Analysts point out that due to the aggressive actions of the world’s central banks, investments in fast-growing sectors have sharply decreased. The leader in decline is the technology sector: minus 28% against the background of the sharp price reduction of “Meta”, “Amazon” and “Eper”. Companies for discretionary goods (products and services of non-essential needs that people can safely refuse) are not far behind with a loss of 24.9%, says Evgeny Shatov, a partner at Capital Lab.
With inflation accelerating and the economy expected to slow, investors sold stocks on the assumption that consumers would cut spending in those categories.
“The positive result in the energy sector (13.2 percent) – as “Shell” and “Exxon” profited from high oil prices,” adds Shatov.
Wrong strategy
Tax on profits from the sale of oil and gas in Norway is 78 percent, and excess profits go straight to the investment fund. He had every opportunity to multiply profits after Europe was gripped by a massive fuel crisis. However, in recent years, the organization has systematically reduced investments in the energy sector.
“They focused on investments in green business. And this year it sank sharply due to the rise in prices of combustible minerals. As a result, they did not earn, but lost huge sums of money,” notes Leonid Khazanov, an independent industrialist expert.
Alexey Fyodorov, leading economist at the Teletrade information and analytical center, also points to the high risk of investments.
“At the beginning of the year, around 72% of the Norwegian Petroleum Fund’s assets were in stocks with an emphasis on the high-tech sector. Another 25% went into the public debt of the US, Japan, Germany, more than two percent into real estate, the rest into renewable energy. Such a portfolio structure gives increased profitability only in favorable periods,” explains the analyst.
In a downturn in the world economy, especially a cyclical crisis, the yield will be negative. In the first half of 2022, the main stock market benchmark, the S&P 500, sank 21 percent, leading to record losses. Thus, the damage suffered by the fund is a direct consequence of the incipient cyclical crisis.
Unwise decisions
In addition, according to observers, politically motivated investment decisions played a big role. The Norwegians gradually abandoned investments in Russian and Chinese companies. And after the start of the military operation in Ukraine, the government instructed to freeze all investments in Russia and develop a plan for a complete withdrawal from this market.
As Bloomberg notes, this is “a rare case in which politics has begun to control investment in the country’s savings – Norway has not previously used the fund as a political tool.”
“Keeping the same investment portfolio structure, a 50 percent decline in the S&P 500 index at the end of the year would increase the fund’s losses to $410 billion (34 percent of total investments). This will be a new anti-record, it will reduce the value of the fund from the current 1.05 trillion dollars to 810 billion dollars,” Teletrade predicts.
The entry into force of the ban on importing oil from Russia into the European Union also promises new losses. As Khazanov explains, the ability of Norwegian companies to increase production is extremely limited, and they will not be able to profit from the rise in the price of black gold. The fund will lose money again. In this regard, it will probably ask for help from the authorities in the country and the EU – if it turns out that there are not enough funds to pay pensions.
Translation: V. Sergeev
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