Norway has grown rich on oil and fish.
Norway is a great place to live, if you believe the UN. It rates Norway as the world's best country, due to its healthy life expectancy, literacy rates and thriving economy.
That puts it just ahead of the likes of Australia, Canada, New Zealand, Switzerland and the other Scandinavians, and miles ahead of the UK, which has just slid out of the top 20.
Norway doesn't look so good from the bottom of a beer glass, unless you like paying £7 for a half-litre of indifferent local pilsner, but will investors find it better value?
Oil and fish
I'm mostly based in Norway and whenever I've mentioned that fact, several fellow Fools have recommended the country as an investment safe haven, a cosy port to ride out the global economic storm. They're only slightly wrong.
Norway is an oil giant, the third biggest oil exporter in the world, producing around 3 billion barrels of oil every day. That's a lot of money, when you divide the proceeds by a population of just under 5 million. It also has plenty of gas, most of which it exports, preferring to use hydroelectric power on the home front.
But unlike the UK, Norway hasn't squandered its good energy fortune. Instead, it saves its oil wealth in a giant state pension fund that is now worth $440 billion, the second largest in the world.
It doesn't spend any of that, not even on pensions, which are funded on a pay-as-you-go system. The oil fund is being saved for when the energy dream finally runs dry, to preserve the country's welfare state. Unlike their Icelandic neighbours, Norwegians have learned not to get carried away during the good times.
Norway doesn't just have oil and gas. It also has shipping, power generation, chemicals, forestry and fishing, all of which attract global demand. The Norwegian market is up 16% over the past 12 months, according to MSCI, while Europe has fallen 2%.
The country's demographics are pretty healthy as well, thanks to some of the most generous maternity benefits in the world.
Pining for the fjords
The oil industry is also heavily taxed, and around 70% state owned, which explains why Norway is currently running a 10% budget surplus, when the UK has a deficit of over 13%. Unemployment is just 2.2%, against an EU average of 10%.
The land is a fiscal dream. When China recently launched the Dagong Global Credit Rating Co as a snub to flawed Western credit rating agencies, it rated Norway AAA, while cheerfully downgrading the US to AA with a negative outlook, and marking Britain AA-.
And rightly so. Norway is economically, socially and politically solid, and its people are prosperous. The average full-time salary in Norway is $67,543, compared to just under $40,000 in the US and UK. That partly explains the price of beer -- although tax is the main culprit.
The Norwegians have regularly voted against EU membership, and have kept their own currency, which Europhobes see as an example to the UK. The truth is that the Norwegian petrodemocracy is a special case.
Heroes of Telemark
Previous Fool posters have been drawn to Norway by its strong currency and stable economy. So should you be investing there? If one of the attractions is the strong krone, that is also one of the drawbacks. The pound doesn't go far in Norway these days (as I know to my cost). Another problem is that as a minor currency, the krone tends to bob up in and down in line with the euro.
In early March, the pound hit a low of just 8.80 NOK and €1.10 but it rallied during the Club Med sovereign debt crisis to hit a peak of 9.75 NOK and €1.22 in August. There were good reasons for the euro to slide against the pound, but no reason why the blameless Norwegian krone should suffer. Yet it did.
I mention this because earlier this year, one Fool posted a message saying he was shifting money into Norwegian banking stocks, to protect against further UK currency weakness. This strategy wasn't quite as clever as he thought (although the pound dropped to 9.45 NOK on Wednesday).
You won't go bust investing in Norway, but you do face a surprise currency risk.
If you're looking for a solid banking stock, you might start with the country's main bank, DnB Nor. The stock is trading on a p/e 10.6 for this year and 9.3 next year, and is on a forecast yield of 4.1% for 2010, and 4.9% for 2011. Its forecast earnings per share (EPS) growth is 9% for 2010 and 14% next year.
Norwegian oil giant Statoil is on a forecast p/e of 8.4 for 2010 and 7.1 per 2011, with forecast yields of 5.3% and 6% respectively. It currently trades at 121 NOK, down from 150 NOK at the start of the year, so maybe this is a good time to buy in. Forecast EPS growth is 150% in 2010, and 18% next year.
You might also be tempted by the country's main telecoms operator Telenor, which is on a forecast p/e of 12.6 for 2010 and 11.6 for 2011, and forecast yields of 3.6% and 4.5%.
Socialism in one country
Norway is as solid as a Western economy gets these days, and far more socialist. Norwegians will be the first to admit that their country is hardly a hotbed of entrepreneurial activity, there is too much state regulation. Investors looking for aggressive growth are likely to find Norway a little too comfortable.
Astonishingly, the Norwegian government successfully introduced a law insisting that 40% of boardroom members are female, backed by threats to shut any company that failed to comply.
The future for Norway looks bright, far brighter than the UK, even after oil reserves start declining in a decade (it still has the gas and hydroelectric), but watch out for that surprise currency risk.
More from Harvey Jones:
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