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Norway's wealth fund says sterling flash crash reflects economic prospects
October 12, 2016 / 9:01 AM / a year ago

Norway's wealth fund says sterling flash crash reflects economic prospects

OSLO (Reuters) - The flash crash in sterling was a “correct move” that reflected economic expectations, a senior official at Norway’s sovereign wealth fund, one of Britain’s biggest foreign investors, said on Tuesday.

The pound plunged about 10 percent in a matter of minutes in early Asian trading on Friday, prompting the Bank of England to investigate why. The currency recouped much of the loss - which may have been due to automated trading - but was still down 1.5 percent on the day.

“It (the flash crash) was a permanent impact on the price. So if you do believe in markets, it was a correct move. It reflects the expectations of the UK economy,” Oeyvind Schanke, chief investment officer for asset strategies at the Norwegian sovereign wealth fund, told Reuters.

“I do believe in market forces and I do believe that investors have an ability to price. And what that price move indicates to me is that they are worried about what is happening in the UK,” he said in an interview on the sidelines of a seminar.

Schanke declined to say if the fund had taken any steps after the flash crash.

The Norwegian wealth fund owns shares in most top British companies and holds $11 billion in UK government bonds. It co-owns Regent Street, one of London’s premier shopping areas.

Britain is its second-largest investment location after the United States, accounting for 10.2 percent of the fund’s value at end-2015.

Before and after the vote to leave the European Union, the fund said it would remain a long-term investor in Britain despite “question marks” as to what Brexit would look like, once it has been negotiated.

“For a fund that invests the way we do, anything that is not in favour of free movement of goods, services and people -- that creates frictions in the market place,” deputy CEO Trond Grande told Reuters in August.

“And if that hampers growth in some shape or form, that will ultimately be to our disadvantage.”

In August the fund cut the value of its unlisted real estate portfolio in Britain, made by external evaluators, by 5 percent, to reflect the uncertainty of valuating assets following the Brexit vote - it did not say how much it was worth at the time.

But on Friday, the fund said that uncertainty had vanished, allowing it to stick to the original valuation.

Some 23 percent of the fund’s property investments are in Britain, and 16 percent in London alone. Real estate accounts for 3.1 percent of the fund’s total investments.

($1 = 8.0919 Norwegian crowns)

Editing by Terje Solsvik and Robin Pomeroy

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