The "most feared scenario" for the world's largest sovereign wealth fund: A fragmented world economy could lead to the evaporation of one-third of its assets

Nicolai Tangen, the "helmsman" of Norway's sovereign wealth fund, which has a size of $1.8 trillion, said that the global economy seems to be moving towards fragmentation, which poses the greatest risk to the current market because it could bring about a situation of both low growth and high inflation simultaneously.

Norway's sovereign wealth fund, the world's largest, is managed by the Norges Bank Investment Management (NBIM), of which Nicolai Tangen is the CEO. Currently, the fund's equity investments cover approximately 9,000 companies around the world.

When asked what the greatest risk in the current financial market is, Tangen pointed out that it is "decoupling" and mentioned one of the fund's stress test scenarios, namely the fragmentation of the world economy.

He said in an interview, "This situation of the world decoupling is extremely bad."

"The current situation is... hot wars, cold wars, trade wars, and technology wars. There are numerous frictions between superpowers, which will lead to a slowdown in economic growth, rising inflationary pressures, and increased uncertainty," he added.

A Horrifying Scenario: About One-third of Assets Evaporate

When asked whether the global economy is in such a bad situation, Tangen said, "It seems so."

In the fund's stress test scenario, a "fragmented world" could lead to a reduction of about one-third in the value of the fund's assets.

At the same time, he also noticed a contradictory phenomenon, that is, although the market has experienced significant fluctuations in recent weeks, the decline since the beginning of this year is not that large. Tangen pointed out, "If I had been told in advance that these events were about to happen, I would never have predicted that the market could still maintain its current level."

As for how long this situation will last, Tangen said it is difficult to judge and noticed that currently, enterprises generally do not want to provide performance outlooks. "More and more companies are no longer providing forecasts when releasing their financial reports."

Which Enterprises Are More Resilient?

Tangen believes that in the current environment, the most resilient enterprises can be divided into two categories: companies that can pass on cost pressures (because their competitors are also facing the same price increase pressures), and enterprises with flexible supply chains.

He refused to disclose the names of specific industries or companies that are particularly affected by the trade war.

Overall, in the past year, the proportions of stocks and technology stocks in the fund have slightly decreased. But Tangen said that the overall adjustment range is limited because the fund must follow the investment framework set by the Norwegian Parliament.

A report released by NBIM last Thursday showed that Norway's sovereign wealth fund had an overall investment return rate of -0.6% in the first quarter, which is equivalent to a loss of $40 billion, the largest decline in asset value since the third quarter of 2023.

Some tips

Facing the current complex and challenging global economic landscape, I believe that both governments, enterprises, and investors need to maintain a clear mind and keen insight. We should continuously optimize our investment portfolios and balance risks and returns.

Don't be limited to a single place. Instead, we should make more use of various financial instruments, take a global perspective, and strive to achieve financial freedom.