Norway's wealth fund flags sovereign debt risk to stock markets
Technology
Norway's wealth fund flags sovereign debt risk to stock markets
ARENDAL, Norway (Reuters) - Countries around the world are not doing enough to reduce their debts and this poses a risk to the stability of already uncertain financial markets, the CEO of Norway's $1.7 trillion wealth fund said on Wednesday.
The fund, which invests the Norwegian state's revenues from oil and gas production, is one of the world's largest investors, owning on average 1.5% of all listed stocks worldwide. It also invests in bonds, real estate and renewable energy projects.
The fund posted on Wednesday a profit of 1.48 trillion crowns ($138 billion) in the first half of the year as global stock markets rose.
But fund CEO Nicolai Tangen told a news conference such good results were unlikely to continue given "more risks to stocks markets now than there were before". One of them comes from the level of sovereign debt worldwide, he said.
"We are worried about it because it's at a level we haven't seen (before), it is continuing to increase, and there seems to be very little willingness anywhere in the world to actively try to reduce it," he later told Reuters.
Tangen declined to name any specific nations at risk, but said the problem affected "most of the countries and many of the big countries too" and would make financial markets "less robust".
Although he did not expect "a crash around the corner," a crisis could happen suddenly, Tangen said, citing Britain's 2022 market plunge after the government of then-prime minister Liz Truss presented a fiscal budget markets assessed as unsustainable.
Then, a string of heatwaves in her town of Mitrovica in northern Kosovo made her change her mind.
"You don't know the timing, you don't know what's going to trigger it. But suddenly, for whatever reason, you (the markets) lose a bit of faith," he said.
Asked whether the fund could try to reduce the risk, Tangen said there were "limited steps we can take because if we did it would impact the whole financial system".
One thing it can and is doing is highlighting the risk to its owner, the Norwegian state, deputy CEO Trond Grande told Reuters.
TECH STOCKS
In the first half of this year, the fund's equity portfolio saw a return of 12.5% from January to June, while its fixed income and real estate assets incurred losses of 0.6% and 0.5% respectively.
"The result was mainly driven by the large technology stocks and the increased demand for new solutions in artificial intelligence," Tangen told the news conference.
To lessen the risk, the fund last year reduced its holdings in tech companies, taking them below the level allowed under the rules of the fund's benchmark index, but Tangen said there were no plans for further cuts.
"We feel pretty good with the way we are positioned just now," he told Reuters, declining to say why.
