Norway: World's top wealth fund flags stock market risks

Norway's Government Pension Fund Global, the world's largest sovereign wealth fund, has warned of significant risks to its $2.4 trillion portfolio, particularly in the stock market driven by artificial intelligence (AI) investments. CEO Nicolai Tangen stated that a massive loss in such an extreme market collapse is not completely improbable.

Despite the fund delivering a record profit of $186 billion in the first six months of the year, Tangen warned that the AI-chip trade now poses a serious risk. A sharp correction could potentially erase much of the wealth accumulated over the past 30 years. The fund, which finances a quarter of Norway's budget, largely follows a passive, broadly diversified global index strategy, leaving little room for active management or hedging.

While many established fund managers share Tangen's cautious stance on stock valuations, they are hesitant to take profits amid unprecedented capital spending in AI-related infrastructure. China, with its lower-cost AI models, is also developing capable AI models. The Bank for International Settlements has warned that AI exuberance risks ending in a bust if returns fall short of expectations.

Norway's fund cannot take significant protective positions due to a strict government mandate. Despite the risks, AI-related stocks have rebounded, with some analysts expecting them to reach new all-time highs by the end of the year.