Norway’s $1 trillion sovereign wealth fund got the go-ahead to cut emerging market government and corporate bonds as part of an overhaul of its US$310 billion fixed-income holdings.
The decision, announced on Friday by the Finance Ministry, comes after more than a year of deliberation. Bonds from Mexico, South Korea, Chile, the Czech Republic, Hungary, Israel, Malaysia, Poland, Russia and Thailand will be removed from the fund’s index, and debt from emerging markets outside the index, such as Brazil and Indonesia, will also be affected, according the white paper.
The fund will still have leeway to invest up to 5 per cent of its bond portfolio in emerging markets, currently about US$15 billion. It owns about US$28 billion in such investments, with the biggest holdings in South Korean and Mexican debt.
The move doesn’t go quite as far as the initial proposal from the fund, which called for whittling its bond holdings down to just three currencies: the euro, the dollar and the pound. Big currencies such as the yen, the Australian and Canadian dollar and the Swedish krona were spared. The ministry also rejected the fund’s wishes to cut corporate bonds.