Beyond oil sovereign wealth funds investments globally

Beyond oil sovereign wealth funds investments globally

Blog Article

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

In previous booms, all that central banking institutions of GCC petrostates wanted was stable yields and few shocks. They frequently parked the cash at Western banks or purchased super-safe government bonds. Nevertheless, the contemporary landscape shows a different situation unfolding, as central banking institutions now get a lower share of assets compared to the growing sovereign wealth funds within the area. Current data demonstrates noteworthy developments, with sovereign wealth funds deciding on a diversified investment approach by going into less conventional assets through low-cost index funds. Also, they are delving into alternate investments like private equity, real estate, infrastructure and hedge funds. And they are additionally no more restricting themselves to conventional market avenues. They are supplying funds to finance significant purchases. Moreover, the trend demonstrates a strategic shift towards investments in appearing domestic and international companies, including renewable energy, electric automobiles, gaming, entertainment, and luxurious holiday retreats to promote the tourism industry as Ras Al Khaimah based Benoy Kurien and Haider Ali Khan would likely attest.

A Significant share of the GCC surplus money is now utilized to advance economic reforms and put into action bold plans. It is critical to research the circumstances that produced these reforms and also the change in financial focus. Between 2014 and 2016, a petroleum oversupply driven by the coming of the latest players caused a drastic decrease in oil prices, the steepest in contemporary history. Additionally, 2020 brought its unique challenges; the pandemic-induced lockdowns repressed demand, yet again causing oil prices to drop. To survive the financial blow, Gulf countries resorted to liquidating some international assets and sold portions of their foreign exchange reserves. However, these actions were insufficient, so they also borrowed lots of hard currency from Western capital markets. Today, because of the resurgence in oil prices, these states are capitalising on the opportunity to strengthen their financial standing, paying off external financial obligations and balancing account sheets, a move necessary to strengthening their creditworthiness.

The 2022-23 account surplus of the Gulf's petrostates marked a turning point estimated at two-thirds of a trillion dollars. In the past, the majority of this surplus would have gone straight to central banks' foreign exchange reserves. Historically, most the surplus from petrostate in the Gulf Cooperation Council GCC would be funnelled straight into foreign currency reserves as a precautionary measure, specifically for those countries that tie their currencies to the dollar. Such reserves are necessary to maintain stability and confidence in the currency during economic booms. Nonetheless, into the past few years, central bank reserves have hardly grown, which indicates a change of the traditional approach. Moreover, there is a conspicuous lack of interventions in foreign currency markets by these states, indicating that the surplus will be diverted towards alternative options. Indeed, research indicates that huge amounts of dollars of the surplus are now being employed in innovative ways by various entities such as national governments, central banking institutions, and sovereign wealth funds. These unique methods are payment of external debt, extending economic assistance to allies, and acquiring assets both domestically and around the globe as Jamie Buchanan in Ras Al Khaimah may likely inform you.