The head of Norway’s sovereign wealth fund told a Toronto economics conference that he thinks the next 10 years will be a “wasted decade” for financial markets, without any real returns in the coming years.

Nicolai Tangen, the chief executive officer of Norges Bank Investment Management, said during a Wednesday talk at the Toronto Global Forum that he is basing that dismal prediction on factors such as inflationary pressures, climate change, deflation in China and more. 

“I don't think we're going to get any returns in financial markets for the next five to 10 years. I think it's going to be really, really dull,” Tangen said during the conference. 

“I think it's going to be a completely wasted decade.”

INFLATION AND CLIMATE IMPACT

Tangen said he was “amazed” that central banks didn’t take action on inflation sooner, arguing that inflationary pressures began to arise “everywhere” a few years ago.

“When we spoke to central banks, we asked them, ‘Don't you speak to companies,’” he said. “Many of them have a policy of actually not speaking to corporates, which makes no sense to me. So inflation has been strong and it has continued.”

Inflationary pressures have also become more clearly linked to climate change, which Tangen said presents one of the largest threats to values in the fund he manages.

Over the last 10 years, it's increasingly clear that the climate is hitting food prices … You're seeing it all over the place and it’s really a financial risk,” he said.

Climate change is also hitting productivity through impacts from heat and flood events, Tangen added, arguing those impacts are further fuelling inflation.

CHINA DEFLATION

While most of the world faces inflationary pressures that are being worsened by climate change, Tangen said China faces the opposite issue of deflation, which presents a new and important challenge. 

“What we are hearing just now is that there is perhaps more deflation coming out of China than I had expected because demand is quite low and so prices are being are being lowered significantly,” he said. 

Norges Bank Investment Management is a fund that manages revenues from Norway’s oil and gas resources. According to Tangen, 80 per cent of equities in the fund are passively managed while the remaining 20 per cent are more actively managed.