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The Norwegian Krone in 2016

09.11.2015

After three years of sharp decline, the NOK is set for a trend change in 2016. In that case, the exchange rate driven party for non-petroleum related export industry is coming to an end.

During the summer of 2013 Norges Bank grew concerned about the Norwegian economy and took a dovish stance on the monetary policy. This, together with the subsequent oil price collapse, sent the NOK into freefall.

During the last three years the price for one dollar, euro and Swedish krone increased respectively by 50, 25 and 15 percent against the NOK. These large movements have led to a profit boom and share price explosion in a large part of the traditional export industry.

One of the winners during the last three years unsurprisingly was the fish farming industry where share prices went up two to four times. Borregard, Tomra, Yara and Hydro have also done well, although much of the currency gain has been eaten up by a falling aluminum price for the latter.

Furthermore, Norske Skog would probably not be alive today if not for the fall in the NOK.

Changing trend

However, next year the NOK exchange rate should have a trend change. The trigger will be a gradual increase in the oil price.

The Norwegian Krone is also supported by two other factors. Firstly, the NOK seems to be undervalued against the euro at current levels. This is evident due to the fact that Norway still has a large trade surplus in spite of the oil price being halved.

Secondly, the fiscal policy might surprise on the expansive side. The flood of refugees will put upwards pressure on public spending. Moreover, there are parliamentary elections in 2017, and this will undoubtedly lead to less fiscal discipline.

A more expansionary fiscal policy will reduce the burden on monetary policy and decrease the need for a weak NOK. 

Det norske oljeselskap

We suspect that oil prices have reached the bottom and that the trend will tilt moderately upwards. This motivates us to include Det norske oljeseselskap into the Dovre portfolio.

The company owns high quality oil fields making it a takeover candidate. Furthermore, Det norske is fully funded, at least as long as the oil price is above 40, while the valuation is also attractive.

The main risk is that oil prices could get a last drop if this winter is unusually warm. The offset is that OPEC will meet on December 4th, and although expectations are low, there is a possibility of a production cut. 

If no one believes OPEC will take action, there is probably not much to lose in betting that something might happen?

Dovre-portfolio:

  • RCL
  • Panoro Energy
  • Veidekke
  • Tomra
  • Marine Harvest
  • Det norske oljeselskap

In: Det norske oljeselskap

Out: Aurora LPG