Plunge Drives $9 Billion Norway Fund Back to Buying Stocks

  • Adding exposure after paring overweight in November, December
  • Prefers European equities to U.S. shares after Fed move

The $9 billion tactical asset allocation unit of Norway’s largest listed life insurer, Storebrand ASA, is buying stocks again after a four-month hiatus in a bet that a fear-driven rout has gone too far.

“The size of the correction now is somewhat excessive,” Olav Chen, head of tactical asset allocation at Storebrand Asset Management, said in an interview on Wednesday. “Short term we are positioned for a bounce up because it’s oversold.”

Chen’s unit has in the past days started to buy global stocks for the first time since September. That comes after trimming an overweight in the last two months of 2015 that in hindsight may not have gone far enough, he said.

“We’re not buying super aggressively -- there’s a lot of fear in the market,” Chen, 38, said at his office in Oslo. “We bought a small amount of Swedish equities and global equities.”

Global equities started 2016 with a plunge, as the Stoxx Europe 600 Index and the Nikkei 225 Stock Average entered bear markets. The MSCI Inc. gauge of global equities has declined about 18 percent from a high in April amid plunging energy prices, rising U.S. interest rates and concern over China’s ability to manage a transition to more sustainable growth.

The Stoxx Europe 600 rose 1.7 percent as of 9:45 a.m. in Oslo. The Nikkei closed up 5.9 percent on Friday.

Amid the turmoil, Chen is looking to stock markets for growth.

“Corporate bond spreads have widened,” he said. “Government bonds have continued to do well, so we’re selling government bonds and buying stocks in our tactical mandates.”

And with an earnings recession in the U.S., Chen prefers Europe for equities.

“Europe is still early in the cycle -- no margin or wage pressure at all -- and the ECB has taken over the relay baton from the Fed,” Chen said. “The asset reflation story is still intact in Europe. In the U.S. the end of the asset reflation story has started.”

With the Federal Reserve starting to raise rates and after almost seven years of rising stock markets, investors must prepare for lower returns, according to Chen, who sees his overhang in stocks being pared back in the long-term.

“Since 2009 we have been largely overweight equities and long-risk assets,” he said. “Going forward one has to be more sober in relation to return in the stock market than in the period from 2009 to now. We can’t expect double figure returns with the rates we have.”

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