Norway’s sovereign wealth fund, the world’s biggest, lost more than 5% on its investments in the past month, the head of the $830billion fund said.
The revelation follows the biggest selloff in Chinese stocks in two decades. The most recent developments suggest China’s transition to a more consumer-driven economy is proving difficult, Chief Executive Officer Yngve Slyngstad said Wednesday in the Staavi and Valebrokk podcast for newspaper VG.
“We can’t put everything away safely into the bank — we need to invest in risk,” Slyngstad said in the podcast. “We invest in bonds, we invest in stocks and we invest in real estate, in the world economy.”
The latest market rout isn’t a sign that China is coming to a complete halt, but it’s the first time that an economy has enacted such large adjustments in such a short time, he said.
China’s stocks initially extended the steepest five-day drop since 1996 after a rate cut by the People’s Bank of China failed to stem a rout that followed the devaluation of the yuan. The Shanghai Composite Index climbed 1.6% on Thursday, trimming an early gain of 3 percent. The gauge dropped 43 percent from a June high through Wednesday.
Slyngstad has been seeking to expand the fund’s investments in China, which he sees as key to capturing more of global growth. After years of lobbying, the fund earlier this year had its quota for investments in Chinese A shares lifted to $2.5billion from $1.5billion. It had about $27billion invested in China and Hong Kong at the end of last year.
The fund also posted a loss of NOK73billion ($8.7billion) in the second quarter, the first decline in three years.
“China has had a big period of growth recently, and therefore it has been a big contributor to the oil fund’s growth over the last 20 years,” he said.
The country “needs to make changes to its economic model to a more consumer-driven economy” and that shift seems quite challenging, he said. “Leaders in China know that change needs to happen.”
China’s government halted its intervention in the equity market earlier this week, according to people familiar with the situation. The government has already banned major shareholders, corporate executives and directors from selling stakes in listed companies for six months, and ordered state-owned institutions to maintain, or boost, their stock holdings.
For now, it’s difficult to get a reading of the situation and difficult to understand the macroeconomic information that China provides, he said.
“We get a lot of information on the micro-level but it’s difficult to get a read on the full picture of what is happening,” Slyngstad said.
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