Trading activity in the equity market in 2005 was at a level that could scarcely have been dreamt of just a few years ago. Shares worth an average of NOK 6 billion changed hands every day, representing an increase of 66 % from 2004 and 170 % higher than 2003. The Oslo Benchmark Index reached a new all-time high no fewer than 65 times in 2005, equivalent to a new record on approximately every fourth trading day. Since its low point in February 2003, the Benchmark Index has gained 237 %, which is a very strong performance even by international comparison. Higher oil prices, good earnings by listed companies and, not least, a favourable international economic climate all played a role in the year's stock exchange rally and investors' continuing optimism.
Broadly based rally with energy shares taking the lead
2005 again saw a broadly based upturn for the Oslo market, and all the sector indices gained ground. However, there can be little doubt that oil and oil-related shares played the major role in moving the market forward, as can be seen in the gain of 79,5 % achieved by the energy index. The Oslo market's two largest companies, Statoil and Hydro, gained 63 % and 45 % respectively, while the tanker company Frontline saw a 12,5 % upturn. The year's top performer was the oil company DNO, which increased in value by a hefty 849 % to reach a market capitalisation of NOK 13,5 billion. The DNO share price enjoyed a particular surge towards the end of the year when the company announced that its first trial drilling in northern Iraq had found oil. DNO's fantastic performance in 2005 is largely due to the market's expectations for its oil exploration in Iraq, as well as other encouraging news from the company and the high oil price.
The year was also characterised by a very strong market for drilling rigs, which led to a number of companies in this sector seeking a stock exchange listing. A number of rig companies can be found well up the list of stock exchange winners in 2005, including Petrolia Drilling, Sinvest, Ocean Rig and Fred. Olsen Energy. These companies saw their share prices rise by between 170 % and 350 %.
Shares in the airline Norwegian enjoyed a very successful year, gaining 485 %. Norwegian's success reflects new routes, better capacity utilisation and, not least, stronger earnings. Its competitor SAS also enjoyed a good year, but had to be content with a gain of 53 %. Companies in the Aker family also made their mark on the Oslo exchange in 2005, with no fewer than six companies listed on the stock exchange. Of these, Aker, Aker Kværner and Aker Yards produced the strongest improvements in share price with 219 %, 157 % and 117 % respectively. The overwhelming majority of companies listed on Oslo Børs saw an improvement in share price in 2005, and as many as xx companies doubled their market capitalisation. Of these, around two-thirds are related to the oil industry.
The list of companies with falling share prices in 2005 is relatively short, but we find former IT favourites such as Tandberg and Ementor well up the list with declines of 45 % and 26 % respectively. Tandberg issued another profit warning in December which had a sizeable adverse impact on its share price, while the Ementor share continued the downward trend seen in 2004. Among the largest companies on the losers' list, we find RCCL and Norske Skog, where share prices fell by 9 % and 10 % respectively.
46 new companies join the Oslo market
Oslo Børs admitted as many as 46 companies to listing in 2005, and we have to go back as far as 1997 to find a busier year for new listings (58). Oil and oil-related companies accounted for 21 of the new companies, while the other 25 came from eight different sectors.
The level of new listing activity says a lot about the state of the Norwegian economy, and not least reflects the direction and success of many Norwegian companies that have found it natural to seek a stock exchange listing. The corporate sector continues to show strong interest in new listings, and if market conditions remain favourable, it seems likely that investors will again see a number of new investment opportunities join the market in 2006. However, experience suggests that the positive trend for new listings seen over recent years could quickly reverse if the market were to take a less favourable direction.
15 companies were removed from listing over the course of the year, principally due to mergers and acquisitions. This represents another aspect of the normal operation of a stock exchange, which is not only a market place for buying and selling shares but also an arena for corporate restructuring and consolidation.
Foreigners dominate
Foreign investors have played a very active role in the Oslo market for a number of years, but in 2005 foreign trading activity reached a level never seen before. By the autumn, foreign investors had overtaken the Norwegian state as the largest owner of Norwegian shares, and by the close of the year foreigners held around NOK 545 billion of the total capitalisation of the Oslo market, representing an overall ownership approaching 40%.
For some time now, foreign investors have accounted for between 60% and 70% of daily trading volumes, which means that these investors have been largely responsible for the increase in trading the Oslo market has seen over recent years. It is particularly important for a small stock market in a small country that foreign investors find it attractive to invest part of their portfolio here since there is not sufficient private Norwegian capital to meet the sizeable capital requirements that are seen in the market. In addition, increasing interest from foreign investors serves to demonstrate that international investors have confidence in the Norwegian securities market.
International rally
On an international perspective, 2005 was an encouraging year in most markets. The Nordic countries stand out as a strong region for the year, and the Copenhagen and Stockholm markets gained 29 % and 37 % respectively. The major stock exchanges of London and Frankfurt also showed a sound upturn for the year. Markets in the USA were a little more subdued, with the Dow Jones and Nasdaq about unchanged, whereas in Japan the Nikkei index enjoyed its best year since 1999 with a rally of 40 %.
What about 2006?
Share prices in the Oslo market have now risen virtually continually for almost three years. Many people therefore have a more cautious view of the market's future prospects, but if we are to believe the experts 2006 should be another positive year -although not on the same scale as the last three years. Factors that will play an important role as the year unfolds include oil prices, the direction of interest rates and the outlook for American consumption and inflation, as well as the level of demand from China. There is, of course, also great interest in the outlook for corporate earnings in 2006, with particular focus on whether companies prove able to maintain the strong results they have reported over the last few years.
In addition to the matters mentioned above, we have all had to become used to living with the uncertainties of external shocks such as wars, terrorist attacks and epidemics. Such events have created fear and uncertainty in the financial markets on a number of occasions over recent years, and they do have the potential to unleash renewed uncertainty and single-handedly deflate the climate of optimism in the world's financial markets.