The World's Largest Sovereign Wealth Fund Warns: European Capital Markets Face a Crisis

The head of Norway’s sovereign wealth fund has issued a new warning that Europe’s capital markets are facing a crisis and must act quickly to repair them.

Nicolai Tangen, CEO of Norges Bank Investment Management (NBIM), said Tuesday that Europe must “act as soon as possible” to integrate its capital markets. “In terms of capital markets, we really need to pick ourselves up, and the winners will take all. Capital always flows to the most liquid and highest-valued markets, so solving this issue is crucial.”

In his speech, he pointed out that over the past decade, NBIM’s stock portfolio has significantly tilted toward U.S. equities. During this period, European stocks’ share of the portfolio dropped from 41% to 21%, while U.S. stocks increased from 37% to about 55%.

Currently, nearly 40% of NBIM’s investments are in U.S. stocks, with its most valuable holdings including: 1.3% of Nvidia, 1.2% of Apple, and 1.3% of Microsoft.

NBIM manages Norway’s sovereign wealth fund, established in the 1990s to invest Norway’s oil and gas revenues for the long term, creating wealth for all Norwegians. The fund invests in over 7,200 companies across 60 countries worldwide, holding about 1.5% of the world’s publicly listed companies.

As the world’s largest sovereign wealth fund, its assets have exceeded $2.2 trillion. Besides stocks, the fund also invests in fixed income, real estate, and renewable energy infrastructure.

Tangen said the changes in stock allocation over the past decade represent “an extraordinary shift,” driven by Europe’s lag in technology and innovation. “Due to the dominance of U.S. companies in artificial intelligence, Europe lacks strong enterprises in this field.”

He believes one measure Europe can take is to better utilize AI. “In terms of technology diffusion, Europe has already shown some positive signs.”

But he also emphasized that reform is urgent. “We cannot continue to maintain such a fragmented capital market structure, or we will lack sufficient liquidity and market depth.” He pointed out that Europe needs to push for integration, establish more unified rules, and promote cross-border transactions, or it will “fall further behind.”

Market observers and regional officials have also repeatedly stressed the urgency of reforming Europe’s capital markets. In January, IMF Managing Director Kristalina Georgieva called on European leaders to accelerate the Capital Markets Union, improve the Energy Union, lower barriers to cross-border labor mobility, and increase investment in research and innovation.

Tangen noted that NBIM, as a “stakeholder investor,” has a headquarters in Europe and holds about 2.3% of listed companies there. “Is Europe’s capital market in crisis? Maybe. But since it is, we shouldn’t waste this crisis. We already know what to do — action is necessary, or we will fail and be left behind. Now is the time to act.”

Tangen also said that amid the current US-Iran conflict, his team was surprised by the stability of the capital markets. When asked about the potential impact of rising oil prices on the global economy and stock markets, he responded, “Of course, we are concerned. This is an additional risk and an important factor we must consider in our scenario analysis.”

“We’re not trying to predict oil prices, but it’s certain that rising oil prices will bring inflationary pressures, which is a negative factor for the markets.”