On a cyclically-adjusted P/E basis, Norway's stock market is significantly undervalued, with a ratio of 13 compared to the Nordic average of 20. Moreover, in spite of lower oil prices, consumer spending has been rising in Norway with seasonally adjusted gross domestic product growing by 0.5 percent, up from 0.4 percent in the prior three months according to Statistics Norway. In spite of higher growth and a hold on rates at 1.25 percent, speculation continues to mount of a further rate cut in June since lower oil prices have dragged unemployment to a ten-year high in the country.

While Brent crude oil has been on an upsurge since March to a high of just over $69 per barrel, this has since fallen to the $65-66 range. On the other hand, lower interest rates continue to fuel higher mortgage demand with house prices being almost 8 percent higher in April compared with the same period in 2014. Even though low oil prices have clearly been of concern to Norway's economy, there are some positive signs that growth can continue given a higher rate of consumer spending. From an investor's point of view, does this mean that Norway's stock market may in fact be ripe for a bargain hunt? Given that much of Norway's economy has relied on the export of energy and other natural resources, a drop in commodity prices may make Norway an attractive value proposition compared to other European markets.

When looking at the five most traded companies on the Oslo Bors index by market capitalisation, we see that four of the five companies are up by more than 10 percent since January of this year. In particular, while oil firms Statoil (STL.OL)(STO) and Seadrill (SDRL.OL)(SDRL) are up by 10 to 15 percent, financial services firm DNB (DNB.OL)(DNBHF) is up by over 22 percent. Moreover, two of the three companies trade at a P/E ratio lower than 13:

Sources: Bloomberg, Yahoo Finance, YCharts

With Norway's oil companies on an upward trend since the beginning of January, their returns have outperformed the likes of more mature oil companies such as Chevron (CVX) and Exxon Mobil (XOM), which are down by over 8 percent this year. Therefore, should oil prices continue to rise then it is likely that Norwegian oil firms may be in a better position to deliver higher returns. With respect to Norway's financial system, while DNB has individually shown particularly high returns, the sector in general seems promising. While loans to the private sector across the eurozone dipped significantly over the course of the past year, the same has risen consistently in Norway since 2014. Moreover, Norwegian banks remain among the best capitalised in Europe, and while growing household debt remains a concern, capital adequacy remains high compared to European peers with DNB passing the European Banking Authority's stress test in 2014 by a significant margin.

To conclude, the Norwegian stock market may be significantly undervalued across the energy and financial sectors. Provided oil prices continue a healthy appreciation and household debt does not reach unsustainable levels, then there is every possibility that Norway's stock markets will go higher from here.

References:

• Oslo Bors
• Reuters: Norway's banks need more buffers as oil price falls - central bank