Markets

The world’s biggest sovereign wealth fund wants to change its strategy — and the effects could be global

Norges Bank “is a huge player in global bonds, and as such, many sovereign wealth funds follow the allocation lead of Norway,” said Nicholas Glinsman, chief investment officer at financial advisory firm Evo Capital. “Emerging market debt is one asset class so removed, and it really cannot afford to lose such a significant source of demand.”

“According to the Institute of International Finance, (emerging-market) debt grew to an incredible $56 trillion by the end of the first quarter this year, equivalent to 218 percent” of those countries’ gross domestic product, Glinsman said. That means an “inevitable” hit to the emerging-market debt and currencies “should demand soften, while supply continues to grow at such an electric pace.”

Other market players have noted that the timing could be interesting, especially given how expensive corporate bonds are trading as well as the price of Asian low-yielding bonds — specifically in Singapore and South Korea. Announcements like these also serve to highlight there may still be value in owning U.S. and European fixed income should another recession strike.

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