2008 was a very difficult year for the global economy as well as for Oslo Brs due to the world’s financial downturn. Global equities indices were down by around 40%. 140 companies on Oslo Brs lost over half their value, and the Benchmark Index fell by all of 54%, which is the steepest fall seen in modern times.
January was a tough month for investors in the Oslo market. The Benchmark Index dropped 20%. However, market sentiment had recovered by February. The oil-related shares played the major role in sustaining the Oslo market’s recovery but this picture changed very quickly as the oil price fell back from its July peak ($150 per barrel) by almost 80%.
Over the autumn months, the authorities in the USA, Europe and Asia fell into line to launch a range of emergency packages and other policy measures to try and deal with credit crunch. The authorities in Norway implemented many important and appropriate measures, but were a little slow to fully appreciate the scale and speed of the impact on the Norwegian economy.
In October Norwegian authorities recognised that the US and global economy had indeed affected Norway and threatened a sharp slowdown for the Norwegian market as a whole.
It is wrong to believe that the impact of the financial crisis on the real economy first became apparent in autumn 2008. The stock market first showed signs of unease in autumn 2007. When the market did start to fall in 2008, it did so on a big scale. From the end of May to the beginning of October, the value of shares listed on Oslo Brs fell by more than half. This meant that more than NOK 1,100 billion of value disappeared in just four months. Some of the largest companies saw falls of 50-70%, and shares in companies that just a short time ago had been investors’ favourites were now tossed aside.
The collapse of the American housing market and the general financial crisis also had an effect on the Norwegian property market. This meant that listed property companies were among those showing the largest falls in share prices. Scandinavian Property Development, BWG Homes, Norwegian Property and Faktor Eiendom all lost around 90% of their value over the course of the year. At the top of the fallers’ list for the year we find three IT companies, Tandberg Data, Tandberg Storage and Eltek, which each lost more than 95% of their value.
These companies all experienced major liquidity problems during the year. This was also the case for the other companies on top of the fallers’ list: Crew Gold Exploration, Electromagnetic Geo Services, Kongsberg Automotive and CanArgo. These companies all lost more than 90% of their value.
Telenor and Norsk Hydro both fell in value by 64%, while Seadrill and Orkla were down by 58 and 57%. REC had an even tougher time, falling by all of 76%. One of the market’s winners in 2007, Yara, fell by 41%. Norske Skog struggled for much of the year with its high indebtedness and a lack of investor confidence. This historic company closed the year with a fall in share price of 70%. The largest listed company, StatoilHydro, fell somewhat less than the overall market with a drop of 32% for the year.
Share prices were also pushed lower by forced sales, panic, and widespread uncertainty over what would happen next. At times it seemed that investors were indiscriminately offloading shares “for safety’s sake”, and there can be no doubt that some shares have suffered from the market over-reacting.
Despite the financial turmoil some companies were in favour of the fate. They are Canadian oil and gas company Questerre, and Norwegian telecommunications company Opera Software whose share price gained 30%.
Average daily turnover in the equities market fell from NOK 12.9 billion in 2007 to NOK 9.9 billion in 2008. Turnover fell steadily through the autumn months once the financial crisis took hold. The fourth quarter saw average daily turnover of around NOK 6.5 billion, which is only half the level seen in the same period in 2007. The drop in turnover reflects both lower share prices and the fact that many investors have pulled liquidity out of the market for a variety of reasons.
On the other hand, the average number of transactions showed an increase of almost 40% to around 67,000 daily. Much of the increase was caused by greater use of program trading, i.e. computers programmed to trade in response to particular developments and price changes. In addition, broking firms reported an increase in trading by private individuals, which can only be interpreted as evidence that an increasing number of Norwegians believe that the share prices seen in the autumn represent a good investment opportunity.
Only five new companies were admitted to listing on Oslo Brs in 2008, and all of these were in June and July. This is in sharp contrast to the 130 companies admitted to listing over the 2004-2007 period.
Norwegian acquisitions by Microsoft and Nokia were among the more positive events in the Norwegian market in 2008. The American company Microsoft acquired the search engine company Fast Search & Transfer, while the Finnish mobile telephone company Nokia purchased the Norwegian software company Trolltech. In total, 21 companies were deleted from listing on Oslo Brs over the course of 2008. This is in line with the average for recent years, and serves to indicate that the stock market continues to function as an arena for corporate structuring even during difficult times.
One company that attracted a lot of attention in 2008 was Acta. Initially the media put the company’s approach to customer advice and sales under a very unfavourable spotlight. However the most damage was done in the summer when kokrim (the Norwegian National Authority for Investigation and Prosecution of Economic and Environmental Crime) brought charges in respect of trading in Acta shares. This hit confidence in the company, and the share price collapsed by 90% in four months.
DnB NOR went through some difficult weeks following the announcement of the Norwegian government’s first package of emergency measures on 12 October. Kredittilsynet (the Financial Supervisory Authority of Norway) launched an investigation into the way the bank traded in government bonds in advance of the announcement, and this was followed by kokrim bringing charges against two of the bank’s employees for possible abuse of inside information. This caused a lot of adverse reaction, and the bank’s share price fell by all of 40% over October and November. For the year as a whole the DnB NOR share price fell by 67%.
Oslo Axess admitted 10 companies to listing in 2008, while three companies were deleted from listing. 2007 saw 28 companies admitted to listing, with no companies deleted from listing. This marketplace also saw a lower level of activity, with average daily turnover of NOK 24 million. The equivalent figure for 2007 was NOK 57 million.
The recent turbulence in the financial markets has also caused a repricing of commodities in Norway. This has meant that the Oslo market has been more exposed than many other stock exchanges. In global terms, share prices have fallen by around 40%.
A major challenge for economy in Norway is that if oil prices remain below $40 this will lead to new projects being postponed and a sizeable fall in oil-related investment. As one would expect, investment spending by oil companies is heavily affected by the level of oil prices, and many companies are reluctant to launch new projects with oil prices at the current level.
Oslo Brs waits for better times in 2009.
L.D.