NBIM records Q3 loss amid stock market volatility

Norway's Government Pension Fund Global recorded a return of -4.9% in the third quarter, due in large part to a drop in the value of its equity investments.

The fund saw equity investments - which account for 59.7% of the fund's total value - return -8.6% over the quarter, leading to overall losses of 273 billion kroner despite investments in real estate returning 3%.

"The negative return on equity investments was driven by the slowdown in the global economy and the decline in global equity markets, especially the Chinese market," said Yngve Slyngstad, chief executive of Norges Bank Investment Management (NBIM), which manages the fund.

In their latest quarterly report, published today (October 28), NBIM stressed the global economy had "performed less well than expected", with economic growth declining across the globe. This uncertainty around growth was reflected in falling equity prices.

"The negative return on equity investments was driven by the slowdown in the global economy and the decline in global equity markets, especially the Chinese market," Slyngstad said.

Returns were weakest in the Asia and Oceania markets which make up 20.7% of the fund's equity portfolio. The "sharp correction" observed in the Chinese stock market undoubtedly had a knock-on effect, with these markets returning -12.9%.

A -10% return was recorded for Japan, which accounts for the largest chunk of NBIM's Asian investments. But the weakest performer was China, returning -21.3% despite only making up 2.8% of the portfolio.

Volatile markets in China have been apparent throughout 2015, peaking in mid-June when Chinese regulators introduced a cap on margin financing of stock purchases, before crashing spectacularly.

A decline in commodity prices meant basic materials was the worst performing sector, recording a return of -16.9%, but only 10 basis points worse than the oil and gas sector. All equity investment sectors recorded a negative return.

The absolute return for Q3 is the third lowest amount recorded since the fund was started in 1990. However, Slyngstad remains optimistic that despite market volatility, the fund will recover.

"We have to expect fluctuations in the value of the fund when there are large movements in the market," he said. "With the fund as big as it is today, this can have a considerable impact in the short term. The fund has a long-term horizon, however, and is in a good position to ride out short-term market volatility."