Oslo Børs: The year with the hot summer and the dismal autumn

On 25 September the Oslo Børs Benchmark Index closed at an all-time high of 946.43, but this was the last of the all-time highs achieved in 2018. Leading up to this date there had been 31 days of historic highs, with the Index having risen 16.2% since the start of the year. “Oslo Børs beating all other marketplaces” ran a headline in Dagens Næringsliv, with the article going on to explain that no other stock exchange anywhere in the world had generated a better return for investors than Oslo Børs so far in 2018.

Then it turned. From its peak in September, the Oslo Børs Benchmark Index has fallen 15.5%. The change in sentiment has been global, and all the world’s leading stock exchanges have seen sharp falls, with Oslo Børs one of those that has fallen the most.

The Oslo Børs Benchmark Index has fallen 1.8% in 2018. Despite the falls seen in the autumn, the Oslo Børs Benchmark Index has had a much stronger year than other leading stock market indices. At 16:30 on 28 December the USA’s S&P 500 Index had fallen 7.1% in 2018. Other stock market indices have fallen by even more.

Autumn’s share price falls have been the biggest in a long time. To find something resembling a correction on Oslo Børs, one needs to go back nearly three years to February 2016. 2011 was the last calendar year over which the Oslo Børs Benchmark Index was down, and the last time it fell three months in a row, as it has now, was in 2014. Following an unusually long period of continuously rising share prices, many people were expecting a correction. Share price falls following long periods of rising prices are simply part of normal life for stock markets.

Historically, in a normal year the Benchmark Index generates a return for investors of around 10%. If one looks at the Benchmark Index’s historical performance since 1996, it has generated an average annual return of 9.5%. If one includes the former Total Index, Oslo Børs has generated an average annual return of 11.7% since 1982. The total return since 1982 is 5,233%. Over this timeframe, the falls seen this autumn are small.

The price falls seen this autumn were triggered by fear: fear of higher interest rates, fear of slower economic growth, fear of a trade war, fear of a hard Brexit, and a range of other factors that make future prospects less certain. This autumn, sentiment was mainly driven by political factors. Trade policies, geopolitical tensions, and other political developments will continue to play a key role in 2019 and will influence fundamental economic matters globally as well as in Norway.

Oil intensified the falls seen this autumn. Energy is by far the largest sector on Oslo Børs, and oil companies represent approximately 35% of the combined market capitalisation of all the companies listed on Oslo Børs. The rising oil price helped propel the Benchmark Index to new historic highs, but oil dragged the Benchmark Index down in the autumn.

Since the Benchmark Index reached its all-time high, the price of oil has fallen 36%, with the Energy Index having fallen 24.9% over this period.

In 2018 as a whole, however, the Energy Index, which contains a large proportion of companies active in the oil sector, climbed 3.0%. In 2018 Equinor generated a return of 8.8% (share price increase plus dividends), making it the largest single contributor to the increase in the Energy Index. DNO’s and Aker BP’s shares rose by 33.8% and 12.2% respectively, also making a significant contribution. However, the fall in the price of the shares of a number of oil service companies, including Subsea 7 and Borr Drilling, whose shares fell 28.4% and 38.2% respectively, limited the returns generated by both the Benchmark Index and the Energy Index.

Seafood made the biggest positive contribution to the performance of the Benchmark Index. Marine Harvest and SalMarwere the two companies that made the biggest positive contribution to the performance of the Benchmark Index. SalMar’s shares were up a remarkable 83.5%, making it one the companies whose shares rose the most across all the Oslo Børs marketplaces. Marine Harvest, which is the biggest seafood company on Oslo Børs, saw its shares rise 39.6%.

Salmon traded at record high levels for parts of the year, and the high salmon prices contributed to the Seafood Index climbing a strong 50.0% in 2018.

Seafood companies have an increasingly significant presence on Oslo Børs, with the combined market capitalisation of the seafood companies listed on Oslo Børs surpassing 10% of the combined market capitalisation of all companies listed on the marketplace for the first time in history this autumn.

Norsk Hydro was the biggest drag on the Benchmark Index. With a negative return of 34.8%, NorskHydrowas thebiggest drag on the Benchmark Index in 2018. Yara’s return of -9.8% was also significant, and it ensured that Materials was the weakest performing sector in 2018, with the Materials Index falling 24.3%.

The closure of Norske Hydro’s Alunorte facility in Brazil contributed to the fall in the company’s shares. However, the trade war between the USA and China, weaker global growth prospects and fears about slower global growth all had an effect on Hydro, Yara and various other export companies.

Numerous companies listed with Oslo Børs in 2018, but the stock market turmoil has put companies’ listing plans on hold. Stable equity markets with regular price rises are the best climate for companies seeking to list. It looked for a long time that 2018 would be a new record year, but the turbulence seen in the autumn meant a number of candidates for listing put their plans on hold.

Before autumn’s storms, 20 companies debuted on Oslo Børs’ equity marketplaces (Merkur Market, Oslo Axess and Oslo Børs). Over the last ten years, only one year has seen more companies list than this in a single year, namely 2017.

The market turbulence cooled the capital market for equities. 2017 was a record year: never before had stock exchange listed companies raised so much equity capital through share issues than in 2017. In 2018 the primary market was record-hot, with the amount raised in line with 2017 until the autumn, when the temperature dropped. Despite this cooling off, NOK 46.5 billion in new equity capital was raised through share issues in 2018. Historically, this is a large amount.

More loan capital was raised at Oslo Børs in 2018 than ever before, with the bond market achieving new highs. Raising loan capital by listing bonds on Oslo Børs is becoming an increasingly important alternative to borrowing from banks or using other sources of financing. More than 50 new organisations issued debt on an Oslo Børs marketplace for the first time in 2018, with approximately 600 new fixed income issues listed. The uptick in high-yield bonds also continued, and banks are financing their lending growth in the bond market. Norwegian municipalities are also increasingly listing their debt.

In the period up to December 2018, NOK 365 billion in new debt capital was raised from new fixed income issues and increases to existing fixed income issues. The record set in 2017, when NOK 350 billion was raised, was thus broken before the start of December.

2018 was a busy year for trading. In terms of the number of transactions, 2018 was the busiest ever year for share trading. In value terms, 2018 was the busiest year since 2011. The large price fluctuations seen in autumn contributed to the high level of trading.

In 2018 shares worth an average of NOK 5.4 billion were traded each day across 128,000 transactions. The number of trades was 27% higher than in 2017, while in value terms the level of trading was 21% higher.

With best wishes for a Happy and Prosperous New Year from everyone at Oslo Børs.