Away from oil sovereign wealth funds investments globally

Away from oil sovereign wealth funds investments globally

Blog Article

To shore up their balance sheets, Arab Gulf countries are seizing the opportunity presented by high oil prices to improve their creditworthiness.

In past booms, all that central banking institutions of GCC petrostates desired was stable yields and few shocks. They often times parked the cash at Western banks or purchased super-safe government securities. However, the contemporary landscape shows an unusual scenario unfolding, as main banking institutions now receive a lower share of assets when compared with the growing sovereign wealth funds within the region. Current data uncover noteworthy developments, with sovereign wealth funds deciding on a diversified investment approach by going into less main-stream assets through low-cost index funds. Furthermore, they are delving into alternate investments like personal equity, real estate, infrastructure and hedge funds. And they are also not any longer restricting themselves to traditional market avenues. They are providing debt to finance significant takeovers. Moreover, the trend showcases a strategic shift towards investments in growing domestic and worldwide companies, including renewable energy, electric vehicles, gaming, entertainment, and luxury holiday resorts to aid the tourism industry as Ras Al Khaimah based Benoy Kurien and Haider Ali Khan would likely attest.

The 2022-23 account surplus of the Gulf's petrostates marked a turning point approximately two-thirds of a trillion dollars. In the past, most of this surplus would have gone directly into central banks' foreign exchange reserves. Historically, most the surplus from petrostate within the Gulf Cooperation Council GCC would be funnelled straight into foreign currency reserves as a precautionary strategy, particularly for those countries that tie their currencies towards the dollar. Such reserve are necessary to sustain growth rate and confidence in the currency during economic booms. However, within the past couple of years, central bank reserves have barely grown, which shows a change of the old-fashioned system. Additionally, there is a noticeable absence of interventions in foreign currency markets by these states, suggesting that the surplus is being diverted towards alternative places. Indeed, research has shown that billions of dollars from the surplus are increasingly being utilized in revolutionary methods by various entities such as national governments, central banks, and sovereign wealth funds. These unique strategies are payment of outside financial obligations, extending financial assistance to allies, and acquiring assets both domestically and internationally as Jamie Buchanan in Ras Al Khaimah would likely tell you.

A great share of the GCC surplus cash is now utilized to advance financial reforms and put into action impressive strategies. It is critical to analyse the circumstances that led to these reforms and the change in economic focus. Between 2014 and 2016, a petroleum oversupply made by the coming of new players caused a drastic decrease in oil rates, the steepest in contemporary history. Also, 2020 brought its challenges; the pandemic-induced lockdowns repressed demand, again causing oil rates to drop. To survive the economic blow, Gulf states resorted to liquidating some foreign assets and offered portions of their foreign currency reserves. However, these measures were insufficient, so they also borrowed a lot of hard currency from Western money markets. Currently, aided by the resurgence in oil rates, these states are taking advantage on the opportunity to bolster their financial standing, settling external financial obligations and balancing account sheets, a move imperative to strengthening their creditworthiness.