The third quarter brought turmoil and price fluctuations in financial markets the world over. Growing defaults on subprime mortgages in the US led to a widening of the yield spread between securities backed by loans to subprime borrowers and US government bonds. Equity markets were also affected by the turmoil, and prices fell sharply in July and August. Equity markets rallied in September, and part of the drop in prices was reversed. Companies in the Basic Materials sector performed best, while companies in the Financials and Consumer Services sectors performed worst.
Over the quarter as a whole, the Government Pension Fund - Global, the investment portfolio in Norges Bank's foreign exchange reserves and the Government Petroleum Insurance Fund generated positive returns in international currency of 1.15, 0.45 and 2.64 per cent respectively. In the first three quarters of 2007, the two largest funds (the Government Pension Fund - Global and the investment portfolio) generated returns of 4.9 and 4.2 per cent respectively, while the return on the Petroleum Insurance Fund was 2.9 per cent.
Since the beginning of 2003, the Japanese, European and US equity markets have gained 104, 105 and 85 per cent respectively. An index of equities in 24 emerging markets has risen 308 per cent in the same period.