World´s largest sovereign wealth fund cuts investments in Brazil

RIO DE JANEIRO, BRAZIL – Investments by Norway’s sovereign wealth fund, the world’s largest, have plummeted by several billion dollars in Brazil in the first half of the year, which coincided with market turbulence and growing pressure from foreign funds to protect the Amazon.

The US$1.15 trillion Norwegian fund, whose motions can influence other funds, had approximately US$9.6 billion invested in Brazil by December 2019, with US$7.6 billion in shares in 136 companies and US$2.0 billion in fixed income.

But investments in Brazilian shares, which represented 1% of the total invested globally in the segment last year, dropped to 0.6% of the total, or about US$5.2 billion in June.

In turn, investments in debt bonds in reais, which accounted for 0.7% of the total invested in the segment in 2019, no longer featured on the allocation list of the most significant amounts.

While reducing investments in Brazil, the fund stepped up its stakes in companies in China and Taiwan, among emerging markets.

In its half-yearly report released today, the Norwegian sovereign wealth fund confirms the Norges Bank’s decision, the country’s central bank and its controller, to drop investments in 12 companies, two of them Brazilian, and allow 3.

According to the fund, Brazilian mining giant Vale was excluded from its portfolio due to the “risk of contributing to serious environmental damage.” State-controlled utility Eletrobrás will also no longer receive investments from the fund “due to an unacceptable risk of the company contributing to serious or systematic human rights violations,” in reference to projects that would impact indigenous groups.

The fund’s investment in Vale totaled US$375 million, or 0.54% of the capital. For Eletrobras it was US$52.6 million (R$306 million), or a 0.41% stake, last year.

In the report, the Norwegian fund makes no comments about Brazil or environmental policy in the country. But the topic is of great interest in Scandinavia. Several foreign funds have recently warned the Brazilian government about the risk of withdrawing investments in the country unless the protection of the Amazon was guaranteed.

The Norwegian sovereign wealth fund announced that it suffered a loss of 188 billion Norwegian krone (US$21.2 billion) between January and June last year in the wake of the markets shock caused by the covid-19 pandemic.

Investment portfolio yields as a whole fell by 3.4 %. The return on equity investments was down -6.8%; in real estate it was -1.6%; but in fixed rate bonds there was a positive result of 5.1%. The fund’s total yield fell 11 basis points below the benchmark index return.

The fund’s deputy CEO, Trond Grande, highlighted strong fluctuations in the stock market over the period. “The year began with optimism, but the stock market outlook quickly flipped when the coronavirus began to spread globally.”

“However, the sharp stock market decline in the first quarter was curbed by massive financial and monetary policy responses.”

Grande cautioned that even if markets recover well in the second half of the year, “we will still witness considerable uncertainties.”

The Norwegian sovereign wealth fund derives its revenue from the oil and gas industry. Its assets are three times greater than Norway’s gross domestic product (GDP). Its total value is equivalent to US$214,000 for each person in the country.

This year, amid the devastation caused by the pandemic, the fund sold some of its assets for the government to provide a US$19 billion economic stimulus package.