Norway’s Government Pension Fund Global has incurred losses from its Chinese and Japanese equity holdings, contributing to its stock returns trailing bonds and real estate over the first three months of the year.

The NOK5.1trn (€617bn) fund’s Chinese equity investments, which returned -6.1%, accounted for more than a quarter of the listed emerging market portfolio at the end of March, and significantly underperformed its average EM equity holdings, with the portfolio returning -0.5% overall.

According to the fund’s first-quarter report, Japanese equities also lost 5% “due primarily to weaker demand and a fall in consumer confidence”, with shares in Asia and Oceania overall seeing negative returns.

Fixed income outperformed equity during the first quarter of the year, with euro-denominated sovereign debt returning 3.5% compared with 2.4% from Japanese government issuances and 1.8% from US Treasury notes.

The fund also increased its EM debt holdings over the course of the quarter, largely divesting holdings in the four main currencies of US dollar, yen, euro and pound sterling in favour of a 1.3 percentage point increase to EM currency.

“The biggest increases in holdings were in Brazilian, Turkish and Mexican government bonds, while the biggest decreases were in government bonds issued by the US, Germany and Sweden,” the report noted.

While Brazilian sovereign debt was not among the fund’s 10 largest bond holdings at the end of last year, by the end of March it had risen to be the fund’s sixth-largest fixed income holding, behind NOK45bn in Mexican government debt and ahead of NOK38bn in Italian sovereign paper.

The fund also suffered losses on its Russian debt, following the political crisis in the Ukraine.

“Geopolitical uncertainty led to the weakening of the rouble, and the Central Bank of Russia raised its rates in an effort to stem the decline,” the report noted. “This resulted in a return of -9.7% on the fund’s Russian government bonds in the first quarter.”

Asset manager Norges Bank Investment Management also continued to grow its real estate holdings over the course of the first quarter, with property returning 2%.

“Measured in local currency, rental income contributed 1.1 percentage points of the return, the net change in the value of properties and debt 1.2 percentage points and transaction costs for property purchases -0.2 percentage points,” the report noted, adding that currency fluctuations led to a 0.1% decline in returns.