May can be summed up as "negative" and "quiet". Apart from the merger of DnB and Storebrand, there is little new to report from the Norwegian market either. Falling share values and a lacklustre market are ascribable to several factors: a strong Norwegian krone, a costly wage round, higher interest rates and a lower oil price, alongside a turbulent international political situation, are all elements contributing to the negative trend now witnessed in the share market.
Turnover was also sluggish in May. Shares and PCCs worth an average of about NOK 1.8 billion changed hands daily. Disregarding February 2002, which was also a month of thin trading, lower turnover figures have not been seen since October 2001. Transaction numbers were on the same trend with only about 6,674 registered trades per day, the lowest since July 2001.
The great financial merger
Dramatic newspaper reports that DnB president Svein Aaser was seen leaving Storebrand´s official reception premises on Whit Monday prompted loud speculation of a merger of DnB and Storebrand. The price of the Storebrand share jumped as much as 9 per cent the following day while DnB´s share put on 2.6 per cent. After several postponements the agreement was finally presented on 29 May.
Investor reactions to the announcement were mixed. For May as a whole, the Storebrand share climbed 7 per cent, while the DnB share weakened by 6.5 per cent. The merger will mean job cuts equivalent to 750 FTEs and cost reductions totalling NOK 750 million. The conversion ratio is 1.33 DnB shares for each Storebrand share. Twenty per cent of the payment will be in cash. The post-merger market value of the two companies will be NOK 43.2 billion, making the new entity the fourth largest financial conglomerate in the Nordic region. The conglomerate is to be named DnB Storebrand Holding ASA.
IT shares plummet
Among the sub-indices, IT was the one that emerged as the month´s outright loser. All told, the companies making up the IT index saw their value tumble more than 13 per cent in May. For 2002 to date the fall measures as much as 26.6 per cent. With the exception of Office Line, which rose almost 6 per cent, all companies featuring on the IT index showed negative price movements in May. Among the biggest companies that contributed most to the fall were Fast Search & Transfer (Fast), Opticom and Tandberg which tumbled 45 per cent, 21 per cent and 4.4 per cent respectively. Fast was the month´s poorest IT performer despite presenting the company´s first-ever profit at the end of the first quarter. The reason is KPNQwest´s bankruptcy with potential financial repercussions for Fast.
Many smaller companies also slid. Intellinet fared worst, falling as much as 62.5 per cent, repeating its April fate as the month´s number one loser. Many international IT companies, large and small, are currently finding it heavy going, and IT shares´ fall probably reflects the general pessimism in evidence on the world´s share markets.
Glittering gold shares
The global political situation is marked by uncertainty and anxiety. The fear of terror attacks in the US, the danger of war between India and Pakistan plus the turbulence in the Middle-East have made investors across the world apprehensive. In times like these, investors tend to turn to more tangible assets such as gold. The price of gold is now higher than for three years. This is fully reflected in gold shares such as Kenor and Crew, placing them high up on the winners´ list for May. The Kenor share rose 25 per cent and the Crew share 15 per cent. Even so it was Norske Skog´s 1.7 per cent upturn that contributed most to the rise of 1.1 per cent in the materials index in May.
Energy down, in step with the oil price
The energy index, dominated by Statoil and Hydro, slipped 1.3 per cent in May. In April the oil price rose steadily from USD 22 to USD 26 per barrel. In May the opposite was the case, with the price falling several times to the USD 23 mark. On the back of the declining oil price, oil shares, including Statoil and Hydro, slipped by 3.5 per cent and 2.5 per cent respectively. True to form, these two companies topped the list of the month´s most traded shares.
Several companies on the energy index had their worries this month, among them PGS and Ocean Rig. For PGS´s part, there is still uncertainty about the merger with Veritas. It is not yet clear whether the sale of Atlantis will go ahead. This is causing uncertainty among investors, who pushed the share price down more than 41 per cent in May. Ocean Rig also ended the month on a somewhat negative note. The company announced a new share issue in May owing to problems with the Eirik Raude drilling rig. The Ocean Rig share lost 25 per cent of its value for May as a whole.
Elsewhere…
Like the sub-indices already mentioned, the industrials index also ended the month down, to the tune of 4.6 per cent. Among the main contributors here was Tomra´s fall of 14 per cent. The Telenor share´s month-end price was NOK 30.50. This was after a fall of 8 per cent which gave the telecommunications index its lowest price so far this year. The negative price trend for several companies on the bourse was also reflected in the OBX index which slipped 3.7 per cent in May.
Despite many red figures, May also brought some bright spots in addition to the mining shares mentioned above. Consumer staples showed an upturn of more than 3 per cent. Orkla was the biggest contributor here with a rise of 3.6 per cent in May. Fjord Seafood, due to merge with Cermaq this autumn, also ended the month barely on the plus side. For Pan Fish the month was less positive: the share fell almost 13 per cent in the course of May.
Imminent interest rate increase expected
Most of the wage round has now been completed, bringing wage growth above Norges Bank´s projection of 5 per cent. Most market participants therefore expect Norges Bank to raise rates at its next interest rate meeting on 3 July. As anticipated, the meeting on 22 May produced no interest rate adjustment, but the central bank somewhat unexpectedly opted to switch to a tightening bias to signal its concern about the expansionary wage round and high consumption and credit growth. The nail in the coffin came on the last day of the month when Norges Bank reported that the credit growth indicator for April ended at 9.0 per cent. This was well in excess of what the market expected. The fact that households are the main contributor to the high growth makes an interest rate increase even more likely.
Interest rates at the short end of the Norwegian market rose substantially over the month. Norwegian six-month rates now stand about 0.4 per cent higher than at the start of the month. The sharp rise in interest rates has widened the differential between Norwegian and foreign rates since the latter have not risen by the same margin. Whereas the differential between Norwegian and US 10-year rates was 1.65 per cent at the start of the month, it is now 1.79 per cent. The equivalent figures for 10-year euro rates are 1.59 per cent and 1.73 per cent.
Ordinary bond and certificate trading rose substantially from April to May, from a daily average of NOK 2.35 billion in April to NOK 3.09 billion in May. Repo trading, on the other hand, dropped back from April to May, from NOK 6.2 billion to NOK 5.2 billion. Compared with May 2001, ordinary trading was up 12 per cent, while repo trading is up by as much as 30 per cent. Comparing the daily average so far this year with the daily average last year, the figures are, respectively, +10 per cent and + 30 per cent.
