Multi Currency Diversification – Norwegian Bonds


Multi currency diversification in Norwegian Bonds could enhance portfolio solidity now.

This is Multi Currency Update #15.

A message entitled Multi Currency Investing for 40 Years
included this question from a Multi Currency subscriber.

“Gary, I wish to hold cash outside of the us dollar. I am now holding euros; however I expect the euro to lose against the us dollar. So I will convert from euro to something else. But what will appreciate against both euros and dollars? I am considering the Norway krona due to their oil and well funded pension system. Have you considered the Norway currency? What have been your most recent thoughts on Norway currency? I love hearing your thoughts on currencies.”

A partial answer to this question in the “40 Years” multi currency message included the current currency breakdown of my personal portfolio.

Cash, Stocks & Bonds

US dollar 12.0%
Euro 10.0%
Danish kroner 7.0%
Swedish kroner 3.0%
Canadian dollar 3.0%
British pound 3.0%
Turkish lira 2.0%
Hungarian florin 2.0%
New Zealand dollar 2.0%
Brazilian real 1.0%
Norwegian Kroner 1.0%
Australian dollar Negligible

Cash, Stocks & Bonds Percentage of Portfolio Total 46%

Real Estate
Agricultural Land 37%
Commercial Property 3%
Ecuador Property 14%

Real Estate Total Percentage of Portfolio 54%

However, I have current commitments that will reduce my dollar cash position from 12% to 8% and increase my Ecuador real estate to 18%.

Plus I am negotiating on another transaction that would reduce my dollar cash position from 8% to 4% and increase my Ecuador real estate to 22%.

However I am also thinking of adding some Norwegian kroner as I reduce my euro position.

The Norwegian inflation data shows that inflation has risen dramatically in
Norway and the inflation pressure is well above Norges Bank’s (Norwegian Central Bank) target (2.5%). Inflation fell somewhat in March but has remained at elevated levels.

Inflation is at a high level, and core inflation has increased markedly. Moreover, the capacity utilisation is very high  and the labour market tight.

This can push inflation higher.

Norges Bank chose to maintain its interest rate at its monetary-policy meeting in March but raised the benchmark interest rate a quarter point to 5.5 percent on April 23, 2008.

This is the  highest rate since April 2003 because the bank is concerned that Norway’s economic slowdown is not enough to shackle inflation.

The bank’s forecast of inflation in its monetary-policy report stated that the
bank may announce further interest-rate hikes in the second quarter if the Norwegian economy is not shaken up by then.

There are economic counter points that could make Norwegian bonds attractive though.

Norway’s housing market is beginning to weaken. This is in part because long term Norges Bank has raised its interest rates a total of 3.5% over the last three years.

Also because of the global economic slow down the bank may hesitate to raise rates more.

So if interest rates are at their high point, this would be a good time to buy Norwegian kroner bonds.

The Norwegian kroner has strengthened over recent months – due
to pronounced increases in oil prices.

Jyske Bank’s commodity team believes that short term oil prices may
fall so there is not much short term upside potential for the kroner.

However long term the kroner may have added strength due to its link with oil.

The good points about holding Norwegian kroner are:

#1: High interest rates
#2: Weaker global growth
#3: Continued turmoil in the financial
markets.
#4: Indications of slowdown in the
Norwegian housing market

The risk pressures include:

#1: Sustained strong Norwegian domestic growth.
#2: Mounting inflationary pressure in Norway.
#3: High capacity utilisation and
continued tight Norwegian labor market.

Here are some Norway kroner bonds from Jykse Bank’s bond list as of May 13, 2008

Currency  Coupon  Maturity         Borrower                     Yield
NOK           6.5      13/08/2008      GMAC INTL FIN            4.70%
NOK           4.5      15/05/2009      DEUTSCHE BANK AG   6.41%
NOK           5.25  06/08/2010      KFW                              5.56%
NOK           5.5      15/05/2009      NORWEGIAN GOV’T     5.34%
NOK           6      16/05/2011      NORWEGIAN GOV’T     4.62%
NOK          6.5      15/05/2013      NORWEGIAN GOV’T     4.40%
NOK          4.6      22/01/2010      TOYOTA MTR CRED     5.69%
I am planning to reduce my euro position as bonds mature and may well add some Norwegian kroner bonds. They pay higher interest than euro denominated bonds.

Compare the yields for example a similar dated bond denominated in dollars or euro at  this time:

NOK           5.5      15/05/2009      NORWEGIAN GOV’T     5.34%
EUR           3.7      15/01/2009      DEPFA PFANDBRIEF    4.30%
USD           6.6      15/11/2010      FANNIE MAE                 2.87%
Norway is suffering from inflation so the Norwegian Central Bank may raise the interest rates even more.  This means I’ll stick to short term bonds like those above that mature in 2010 or earlier from Jyske Bank’s bond list.

You can get current bond yields from Jyske Bank’s bond list at www.JBPB.com

Contact Jyske Bank through their manager of client relations Thomas Fischer at FISCHER@JBPB.DK

Until next update  good global investing to you.

Gary

Join me with yse Bank at our next International Investments and Business Made EZ course.

North Carolina, May 23-25 or Oct 3-5.

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Ecuador Coastal Real Estate Tour


Super Thinking + Spanish Course

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