The Norwegian Krone and the Coronavirus Effect

How is the current market impacting NOK?
.

As the coronavirus spreads, its effect on businesses across the world continues to amplify, especially on the tourist and travel industries. Equity and bond markets have experienced globally a prolonged sell-off over the last weeks. In parallel, Saudi Arabia has started an aggressive price war, after Russia earlier this year did not agree to restrict oil production. Whilst the oil demand collapses, Saudi Arabia has announced that it can increase production.

The Norwegian Krone (NOK) has depreciated sharply due to both the uncertainty associated with the coronavirus and oil price pressures. NOK trades primarily as a proxy to risk-aversion and oil prices. We expect the first factor to remain challenging for a month and then improve somewhat. Measures taken to reduce the spreading of the coronavirus together with the implications of the Russia-Saudi Arabia price war may keep oil prices low for an extended period of time.

.

Norges Bank started to ease by 50 bps to 1% and recommended to the ministry of Finance to remove the banks’ counter-cyclical buffer which is another form of easing. It has increased the amount of petrol revenue dollars sold for NOK which supports the currency (by NOK 1.6bn). In contrast to other countries such as Sweden or Denmark, they are unlikely to move to negative interest rate given help from the government.
The combination of these factors dominated by potentially lower oil prices suggests that NOK can still depreci-ate relative to EUR, though the central bank is warning of active interventions. Longer term though, we maintain the view that the NOK with its far better balance sheet has upside.

How does Nordea meet clients’ need within the current environment?
With the debt-to-GDP below 60% and budget running in surplus over the past month, Norway is one of the strongest country from a financial standpoint. Despite the expected slow-down during the course of the first half of the year, the Norwegian economy relies on an upside potential which helps deal with aforementioned macroe-conomic shocks.

The Nordea Fixed Income range includes two different solutions: the Nordea 1 – Norwegian Bond Fund and the lower-duration equivalent the Nordea 1 – Norwegian Short-Term Bond Fund, more suitable for the investor who are not willing to be exposed to interest rate risks.

The Nordea 1 – Norwegian Bond Fund and the Nordea 1 – Norwegian Short-Term Bond Fund invest in investment grade credit- and government bonds. The latter is also exposed to shorter maturity-duration bonds such as FRNs and commercial papers.

Within the current environment, as below graphs show, the funds preserved their tenures and outperformed YTD their peers in the same Morningstar category.

Source – © 2020 Morningstar, Inc. All Rights Reserved as of 24.03.2020, EAA Fund NOK Bond. Performance in NOK. The performance represented is historical; past performance is not a reliable indicator of future results and investors may not recover the full amount invested. The value of shares can greatly fluctuate as a result of the sub-fund’s investment policy and cannot be ensured, you could lose some or all of your invested money. Comparison with other financial products or benchmarks is only meant for indicative purposes.

Source – © 2020 Morningstar, Inc. All Rights Reserved as of 24.03.2020, EAA Fund NOK Bond – Short Term. Per-formance in NOK. The performance represented is historical; past performance is not a reliable indicator of future results and investors may not recover the full amount invested. The value of shares can greatly fluctu-ate as a result of the sub-fund’s investment policy and cannot be ensured, you could lose some or all of your invested money. Comparison with other financial products or benchmarks is only meant for indicative pur-poses.

Norway: Economic measures to tackle the Corona effect
https://e-markets.nordea.com/#!/article/56333/norway-economic-measures-to-tackle-the-corona-effect

Nordea Asset Management is the functional name of the asset management business conducted by the legal entities Nordea Investment Funds S.A. and Nordea Investment Management AB (“the Legal Entities”) and their branches, subsidiaries and representative offices. Additional information for Nordea 1, SICAV: The sub-funds mentioned are part of Nordea 1, SICAV, an open-ended Luxembourg-based in-vestment company (Société d’Investissement à Capital Variable), validly formed and existing in accordance with the laws of Luxembourg and with European Council Directive 2009/65/EC of 13 July 2009. This document is advertising material and does not disclose all relevant information concerning the presented sub-funds. Any investment decision in the sub-funds should be made on the basis of the current prospectus and the Key Investor Information Document (KIID), which are available, along with the current annual and semi-annual reports, electronically in English and in the local language of the market where the mentioned SICAV is authorised for distribution, without charge upon request from Nordea Investment Funds S.A., 562, rue de Neudorf, P.O. Box 782, L-2017 Luxembourg, from the local representatives or information agents, or from our distributors. The Depositary of the SICAV is J.P. Morgan Bank Luxembourg S.A. Further information can be obtained from your financial advisor. He/she can advise you independently of Nordea Investment Funds S.A. Please note that all sub funds and share classes might not be available in your country of jurisdiction. Additional information for investors in Switzerland: The Swiss Representative and Paying Agent is BNP Paribas Securities Services, Paris, Succursale de Zurich, Selnaustrasse 16, CH-8002 Zurich, Switzerland. Additional information for investors in Germany: The Information Agent in Germany is Société Générale S.A. Frankfurt Branch, Neue Mainzer Straße 46-50, DE-60311 Frankfurt am Main, Germany. A hard copy of the above-mentioned fund documentation is also available here. Additional information for investors in Austria: The Information and Paying Agent in Austria is Erste Bank der österreichischen Sparkassen AG, Am Belvedere 1, AT-1100 Vienna, Austria. Additional information for investors in France: With the authorisation of the AMF the shares of the sub-funds of Nordea 1, SICAV may be distributed in France. Centralising Correspondent in France is CA-CEIS Bank, located at 1-3, place Valhubert, FR-75206 Paris cedex 13, France. Investors are advised to conduct thorough research be-fore making any investment decision. Additional information for investors in Belgium: The Financial Service Agent in Belgium is BNP Paribas Securities Services S.C.A., Brussels Branch, Rue de Loxum, 25, BE-1000-Brussels, Belgium. A hard copy of the above-mentioned fund documentation is available upon demand free of charge. Investments in derivative and foreign exchange transactions may be subject to significant fluctuations which may affect the value of an investment. Investments in Emerging Markets involve a higher element of risk. The value of shares can greatly fluctuate as a result of the sub-fund’s investment policy and cannot be ensured. Investments in equity and debt instruments issued by banks could bear the risk of being subject to the bail-in mechanism (meaning that equity and debt instruments could be written down in order to ensure that most unsecured creditors of an institution bear appropriate losses) as foreseen in EU Directive 2014/59/EU. For further details of investment risks associated with these sub-funds, please refer to the relevant Key Investor Information Document (KIID), available as described above. Nordea Asset Management has decided to bear the cost for research, i.e. such cost is covered by existing fee arrangements (Management-/Administration-Fee). Published and created by the Legal Entities adherent to Nordea Asset Management. The Legal Entities are licensed and supervised by the Financial Supervisory Authority in Sweden and Luxembourg respectively. The Legal Entities’ branches, subsidiaries and representative offices are licensed as well as regulated by their local financial supervisory authority in their respective country of domiciliation. Source (unless otherwise stated): Nordea Invest-ment Funds S.A. Period under consideration (unless otherwise stated): 01.01.2020-23.03.2020. The performance represented is historical; past performance is not a reliable indicator of future results and investors may not recover the full amount invested. The value of your investment can go up and down, and you could lose some or all of your invested money. There can be no warranty that an in-vestment objective, targeted returns and results of an investment structure is achieved. Comparison with other financial products or benchmarks is only meant for indicative purposes. Unless otherwise stated, all views expressed are those of the Legal Entities adherent to Nordea Asset Management and any of the Legal Entities’ branches, subsidiaries and representative offices This document is furnished on a confidential basis and may not be reproduced or circulated without prior permission and must not be passed to private investors. This document contains information only intended for professional investors and eligible investors and is not intended for general publication. Reference to companies or other investments mentioned within this document should not be construed as a recommendation to the investor to buy or sell the same but is included for the purpose of illustration. The level of tax benefits and liabilities will depend on individual circumstances and may be subject to change in the future. © The Legal Entities adherent to Nordea Asset Management and any of the Legal Entities’ branches, subsidiaries and/or representative offices.

Follow our latest posts