Nicolai Tangen, the chief of Norway’s $1.3 trillion sovereign wealth fund, said the recovery of the Chinese economy is likely to unleash a new surge in global inflation, leaving investors with no safe haven to sit out the storm.
“I think the big, big uncertainty this year, is what will happen with global inflation when China kicks in,” Tangen said in an interview on Bloomberg TV at the World Economic Forum in Davos. “I think it will be inflationary and there is a risk that we could see an acceleration of inflation again on the back of that — that would be really bad for markets.”
Central banks across the globe are jacking up interest rates in an attempt to rein in inflation, sparking concerns that their actions will trigger an economic downturn. The risk is that China’s emergence from pandemic restrictions will give prices a fresh push upward.
“The problem with that kind of scenario is you’re not going to make money anywhere,” said the executive, whose fund holds about 1.3 per cent of all listed shares in the world. “When that happens, you will probably lose money in the bond market, in the equity market, you lose money in the real-estate market. I don’t think there’s any place to hide.”
For the first time in its history, the world’s biggest single owner of publicly traded companies is looking to a future where investments yield a fraction of what they used to. Established in the 1990s to invest Norway’s oil riches, the fund has achieved an average return of 6 per cent over the quarter of a century during which it’s existed. Turbulent markets already yielded losses across much of last year. It’s due to report year-end figures on Jan. 31.
The inflationary trend could “go on for quite some time,” Tangen said.
“With the global financial crisis, we had the biggest easing the world has ever seen, then with Covid we had the biggest stimuli we have ever seen,” he said, adding that “a lot of that froth has to be taken out, and that’s not done in 10 minutes.”
“Just the reversal of globalization could add 1 percentage point to inflation — it’s more expensive to produce close to home,” he said.
Tangen, who recently told his traders and portfolio managers to think more contrarian, acknowledged that’s easier said than done this year.
“Now I think it’s much more difficult to know what contrarian is,” compared with last year, he said. “There is less of a clear trend and there is less of a clear positioning in the market.”
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