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

Nicolai Tangen, the CEO of Norway's Government Pension Fund Global, has warned of potential stock market risks due to the surge of investments in artificial intelligence (AI) stocks. The fund, which manages a portfolio of $2.4 trillion, reported a record profit of $186 billion in the first half of the year. However, Tangen believes that a sharp correction in the AI-chip trade could potentially erase much of the wealth built up over the past 30 years.

He explained that in an abnormal period of low taxes, low inflation, and low interest rates, the investments now fund approximately a quarter of Norway's government budget. While many fund managers share Tangen's cautious stance on stock valuations, they are hesitant to cut their losses as the technology sector shows no signs of instability.

China, with its more affordable AI models, could potentially exacerbate the risks. Despite the fund's passive investment strategy, which follows major global markets' index funds, managers have limited options for hedging against potential losses. This lack of flexibility contrasts with institutions like Berkshire Hathaway, which holds substantial cash reserves to protect against market downturns.

Capital inflows from Norway's oil and gas revenues continue to bolster the fund, but it remains one of the most exposed sovereign wealth funds globally due to its heavy equity allocation.