Bullish on Norway

By Roger Nusbaum | July 31, 2008 | 11:34 AM | 1 Comment

I have been a big fan of Norway as an investment destination for several years now. The idea is very simple; anything good for oil is good for Norway. Also, tying in yesterday’s post, Norway is a commodity based economy with surpluses galore which gives a great chance of zigging when the S&P 500 zags.

I have owned Statoil (NYSE: STO) across the board since late 2004 (sold a little in May 2006 and a little more this spring) and a little over a year ago I bought Norwegian sovereign debt that matures next spring.

The first point to make is one of moderation. I am as bullish on Norway as a long term investment destination as any other country out there. I am jump up and down bullish yet I own just one stock (with a 3% target weight) and have a small allocation the country’s debt.

Something that gets lost in the translation in interviews we see and read is how much exposure the person has to the names he is talking about but I think this is vitally important for a couple of reasons. One you get a clue as to the risk taken and on a related note you can get a sense of how right someone must be about a destination so that it does not hurt the portfolio.

So with the weightings I have with Norway the consequence for clients of my being wrong are not serious like they could be if I allocated 15% to Norway. The recent good fortune for Norway is built on high oil prices. The risk to the story is obviously a big drop in oil prices. I do not expect that to happen but that is clearly the biggest threat.

The other day Goldman Sachs (NYSE: GS) issued a bullish call on the Norwegian krone against the euro (here is another one from Jyske Bank) but I think it can continue to be strong against the greenback too. The Norges Bank (the central bank) has been on a tightening cycle for a couple of years and the growing surpluses, as a function of high oil prices, create visibility for further strength after coming off of its high a couple of months ago.

For now there are no ETFs for equities, fixed income or the currency for Norway and I am not aware of any in the works.

According to ADR.com there are ten ADRs for Norway; four energy related companies, two industrial stocks, and one each in banking, chemicals, telephony and a food producer. There are also countless ordinary shares available to research, for this task I would suggest using pinksheets.com to find the five letter US designator.

Buying debt could be difficult to do. Most brokerages have a $100,000 order size minimum.

The takeaway should be that Norway has a different type of economy which has, and hopefully will continue to provide very good diversification.

Nordic Region ETF I got a notification that there was a comment on this post, but I do not see it. Assuming I'm not having a delusion... Mike, IMO a regional product makes the most sense when the countries have a lot in common and I'm not sure these do. If they don't then there could be offset amongst the countries that creates a drag for investors. Norway is about oil, Denmark seems to be more about manufacturing and shipping, Sweden has some resources but I think of Volvo (which is a client holding) and others may think of tech like Ericsson, Finland has a lot of forest land and Iceland has cheap energy they are trying to use to entice things like data centers to come set up shop kind of like the way Alcan did. Iceland also has a very sophisticated banking sector (maybe too sophisticated if you know what i mean). I don't really use regional products and while I am not sure if I am right about any of this i think better precision with the portfolio can be achieved by going narrower. Submitted by Roger Nusbaum on Thu, 2008/07/31 - 1:47pm » reply |