NEWS ANALYSIS: Some analysts and portfolio managers were dismissing the Oslo Stock Exchange’s dive this week as just “a correction,” but with Norway’s most important industries already suffering from China’s Corona virus, national employers’ organization NHO warns that the entire Norwegian economy can be hit hard.
“Norway has a small, open economy,” NHO notes in a new analysis reported by newspaper Dagens Næringsliv (DN) on Thursday. “That means that a shock to the world economy can have a huge effect on us here at home. The virus outbreak in China is an example of just such a shock.”
Investors in shares traded on the Oslo Stock Exchange (OSE) have been getting plenty of shocks in recent days. Like stock exchanges around the world, Norway’s biggest has been losing value all week, down 3.5 percent at its worst on Wednesday and around 5.5 percent since the dive began. Some shares recovered, but the Oslo index was down another 1.85 percent by mid-morning on Thursday. It closed at 843.19, down 4.88 percent from the day before. One commentator called the dive “dramatic,” as major investors logged paper losses in the hundreds of millions of kroner.
Oil-related shares have taken a beating, with newspaper Dagens Næringsliv (DN) reporting how Northern Drilling has seen its share price cut in half. The holding company for Norwegian Air also dove along with other airline shares, down 35 percent during the past week. Norwegian shares fell 12 percent on Wednesday alone, while SAS fell 9 percent, not least after warning that its revenue decline could hit SEK 100 million because of the Corona virus.
‘This is not the plague,’ but it’s hurting
Kristian Tunaal, portfolio manager at Alfred Berg Kapitalforvaltning in Oslo, admits he was surprised by the steep decline on Monday but downplayed the share losses. “We’re in a correction,” he told DN on Thursday, adding that it was expected that virus fears would dampen demand for travel. He and some others like Olav Chen at insurance company Storebrand think the ill effects of the Corona virus that’s now also been detected in Norway and other Nordic countries will fade in coming months. “This is not the plague,” Tunaal told DN.
Others worry that the abrupt downturn this week is just the beginning, with Norway’s oil, seafood and tourism industries most at stake. With the price of a barrel of Norway’s North Sea crude oil down to less than USD 53, prices also slipping for some seafood, and tourists cancelling trips to see the Northern Lights, there’s simply less money rolling into Norwegian coffers. Norway’s already-weak krone lost more strength this week, with one US dollar costing NOK 9.42 Thursday morning.
China’s sickness spreads
The losses are not limited to China, but it’s one of the countries from which Norwegian businesses import the most, to the tune of NOK 77 billion in 2018 according to NHO. Norway also exported seafood, fertilizer, machinery and other equipment to China worth NOK 32 billion. Norway’s trade deficit with China was thus around NOK 45 billion during the same year (the most recent with cumulative figures available) and now Chinese export prices may rise, since the virus has shut down production at many Chinese factories. That can push up prices at the consumer level, just as Norwegian salmon prices are falling because exports have been disrupted, in turn because demand in China and Hong Kong (already hit by months of social unrest) has fallen.
Failure to receive new inventory of Chinese-made garden furniture in Norway, as one wholesaler complained about on national radio this week, may not seem like a serious problem. It does serve, however, as an example of how Norwegian wholesalers and retailers who can’t get such seasonal goods before summer sets in face economic losses. Sales will evaporate if they don’t have the stock to sell.
Pål Ringholm, chief of credit analysis at Sparebank1 Markets in Norway, told DN that he’s been surprised the so-called “market correction” (used for stock exchange falls of between 10- and 20 percent) didn’t begin earlier. He thinks the Oslo Stock Exchange initially handled the Corona virus as if it were “an isolated outbreak of ebola in three West African countries. This is something entirely different.” As the virus spreads outside of China, to other industrial nations like South Korea, Japan and now Italy, “this is no normal cold.”
Major Norwegian companies exposed
In addition to the airlines like Norwegian, analysts contacted by DN note that many other Norwegian company shares are vulnerable as well. They include, according to the analysts, Hydro, which produces aluminum, and Chinese-owned Elkem. Oil companies Equinor and Aker BP are being hit by the lower oil price, and also face waning investor interest. State statistics bureau SSB (Statistics Norway) had already predicted a decline in oil investments and now expects a steep fall in them next year.
Shipping companies like Frontline, Golden Ocean and BWLPG, meanwhile, won’t have as much crude oil or other products to ship. Those shipping shares fell as much as 9 percent on Monday alone. Cruiselines and other tourist-related businesses like hotels and even restaurants can suffer if holidaymakers suddenly don’t relish the idea of being on a vessel with hundreds if not thousands of other passengers, or hear of cases where entire hotels are quarantined because a few guests tested positive for the Corona virus.
Norway’s economy has remained strong, even after the oil collapse in 2014. Now Norway’s currency hasn’t been this weak for decades, an indication of the nation’s health or lack thereof. “This is all about one thing now, it’s the virus,” Bjørn Roger Wilhelmsen, chief economist at Nordkinn Asset Management, told DN. “The krone is among currencies weakening the most,” he added, as currency traders seek safer harbours in uncertain times. He thinks it will “continue to be most affected.”