Scandimania II – Invesco comments

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In this second blog post following his recent visit to Scandinavia, Multi Asset fund manager, Richard Batty, takes a closer look at the economic situation in Norway and investment implications for the Invesco Perpetual Global Targeted Returns Fund.

The second part of my recent trip to Scandinavia took me to Oslo where I met a number of economists to discuss the country’s economic drivers. Experts from the Confederation of Norwegian Enterprise (NHO), Norges Bank, Aften Posten (Norway’s largest newspaper), a group of local investors and officials from the finance ministry shared their views on the future of the Norwegian economy. We added a long NOK, short GBP position to the Invesco Perpetual Global Targeted Returns Fund in the first quarter of this year, so this trip provided a great opportunity to question our existing two- to three-year view.

Norway remains a wealthy country with an oil- and gas-dominated economy and its GDP per head is running at double the European average. The Norwegian economy was subdued over the majority of 2013 as the combined impact of stagnant or falling oil prices, tightening macro-prudential policies (to cool the housing market) and a weak eurozone economy took its toll.

However, a number of factors mean that the economy looks set to re-accelerate modestly in the years ahead – mainland GDP has grown on a quarter-on-quarter and year-on-year basis in 2014 – these include a relaxation of the credit tightening rules imposed in 2013 and wage inflation, which although modest, could well outstrip more subdued CPI, and therefore drive consumption.

While oil investment is set to moderate from record high levels, Norges Bank believes the economy is not suffering from this ‘Dutch Disease’ (unhealthy dependence of economy on oil) economic issue. Construction remains inadequate for the rapidly rising population growth, driven by net migration mainly from Sweden and Poland. This will cause a further acceleration of house prices along with credit growth as it appears everyone wants to, or does, own a house.

Norges Bank appeared much more relaxed about the outlook for interest rates now the banking sector is well capitalised and is imposing Basle regulations. The NOK remains low vs recent history and this has supported the export sector and while Norges Bank appears relaxed about inflation and modest wage growth in the near term, they did seem sensitive to FX appreciation and its impact on the ongoing economic turnaround.


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