Norwegian central bank invests in CMC Markets

BinaryOptionsNow | Published on June 7, 2017 at 3:17 pm

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Central banks have typically stayed away from investing in equities, and taken a backseat in investment activities. Lately, however, more of them are entering the markets because of the decreasing interest rates. This is especially true in Europe where interest rates are at or below zero. As seen on, the Norwegian central bank, Norges Bank, has invested in CMC markets, an online Forex and CFDs broker.

Why is Norges Bank investing in equities?

Norway’s economy depends a lot on the exportation of oil, and like other oil-exporting economies suffered when the price of oil dropped since 2014. In response, Norway chose to diversify their economy away from oil, and one avenue was in the equities markets. Unlike other countries suffering from low oil prices, Norway had a much more robust backup in the form of the Government Pension Fund.

Despite the name, the fund derives its contributions from oil revenues rather than pension contributions. These funds were set aside for investment in the international stock market, and with a value of $892 billion, it is among the largest pension funds in the world and certainly the largest in Europe. In fact, it is the largest stock owner in Europe with 2.33% of European stocks and owns 0.8% of all global equity markets.

Norwegian central bank

In 2009, Norges Bank increased the portion of the fund set aside for equities from 40% to 60%, and then further to 70% in 2014. With dwindling oil prices, Norges Bank felt it would have to diversify its portfolio to sustain the economy, which it did by buying various stocks and even briefly engaging in the Forex market.

Among the stocks bought included a 3% stake in CMC Markets, which represents 8.77 million shares worth $11.9 million. A few days later, Norges Bank increased its stake to 4% for a total of 11.73 million shares worth $16.3 million. Earlier this year, Norges Bank had also bought a 3% stake in Paysafe Group worth $75 million.

Why would Norges Bank invest in CMC markets?

It may seem unusual to buy shares in a Forex brokerage at this time when the FCA has just imposed new rules on Forex trading. The new rules have been seen as restrictive to the industry which ran largely unregulated before. The share price of these Forex brokerage companies fell after the new regulations were put in place, with CMC Markets Plc.’s share price dropping from about $280 to around $120.

However, for Norges Bank, this seemed like the perfect opportunity to seize an extraordinary deal. The new regulations and drop in share price may just be a temporary measure which the industry and company will overcome. Some experts have even gone as far as to say the new measures will actually strengthen the industry because of increased oversight.

The same thing happened with bitcoin, when the People’s Bank of China imposed new regulations on the bitcoin exchanges, and now we see bitcoin prices reaching all-time highs every week. The only difference will be in timing because Norges Bank is not interested in a short-term investment, so the returns may not be realised as soon as bitcoin’s.

So, now we know why and by how much the Norwegian central bank invested in CMC Markets, and you shouldn’t be surprised to see more similar moves.

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