Norway’s sovereign wealth fund, the world’s largest, warned that stock market gains may reverse as Europe’s biggest equity investor said it will not use new inflows to buy more shares.
“Our share in the stock market has been stable or falling even though markets are rising, and that means in practice that we’re not using inflows to buy stocks,” Norges Bank Investment Management chief executive officer Yngve Slyngstad said at a press conference on Friday in Oslo.
The fund is preparing for a “correction” in stock prices, he said.
The warning follows a surge in stock values that added 7.6 percent to the fund’s equity portfolio last quarter. The US$810 billion Government Pension Fund Global, the official name, returned 5 percent in the third quarter, representing a 228 billion kroner (US$39 billion) gain, it said on Friday.
Bond investments climbed 0.3 percent and real estate holdings returned 4.1 percent, it said.
“In general, we see market corrections more as opportunities than as threats, so it’s not something that worries us,” Slyngstad said on Friday in an interview. “If they come, that’s just a positive sign for us as an investor.”
Stocks rallied in the third quarter as the US Federal Reserve unexpectedly refrained from ending its US$85 billion-a-month quantitative easing program last month.
Growth forecasts for China, the world’s second-biggest economy, also improved, propelling equities globally.
The MSCI World Index of stocks gained 7.7 percent in the quarter, paring some gains late last month during the US government shutdown.
The advance has pushed valuations for European shares to the most expensive level since the end of 2009. The Stoxx Europe 600 Index trades at 20.8 times reported operating profit, double the level from September 2011, according to data compiled by Bloomberg.
Norway’s wealth fund, which gets its guidelines from the government, held 63.6 percent in stocks at the end of last month, up from 63.4 percent in the second quarter.
Bond holdings slid to 35.5 percent from 35.7 percent, while real estate accounted for 0.9 percent.
The fund is mandated to hold 60 percent in stocks, 35 percent in bonds and is building up to 5 percent in real estate, while allowing for fluctuations.
“If you’re not buying equities these days, we’re buying bonds or just hold this as cash,” Slyngstad said. “We would of course like to invest more of it in the real estate market, but that takes longer. As long as there are strong markets we don’t see any urge to increase our equity holdings.”
The investor, which posted its second-best year last year, is also undergoing a shift in strategy to capture more global growth. That has involved moving investments away from Europe as emerging markets in Asia and South American make up a bigger share of the world economy.
Its largest stock holding at the end of the quarter was Nestle SA, at a value of 38.5 billion kroner.
The biggest bond holding was in US Treasuries, at a value of 344 billion kroner, followed by Japanese and German government bonds.
“We consider US Treasuries one of the safest investments you can do, and these last few weeks have not changed that view in any way,” Slyngstad said in the interview, referring to the first partial US government shutdown in 17 years.
Mexico rose to fifth place in the fund’s bond holdings, while Brazil and South Korea joined the top 10, at the expense of France and Canada.
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