Beyond oil sovereign wealth funds investments globally

Beyond oil sovereign wealth funds investments globally

Blog Article

To shore up their balance sheets, Arab Gulf states are seizing the ability presented by high oil rates to boost their creditworthiness.

A Significant share of the GCC surplus cash is now utilized to advance financial reforms and implement ambitious strategies. It is important to analyse the circumstances that resulted in these reforms and also the shift in financial focus. Between 2014 and 2016, a petroleum glut driven by the emergence of new players caused a drastic decline in oil prices, the steepest in contemporary history. Furthermore, 2020 brought its own challenges; the pandemic-induced lockdowns repressed demand, once again causing oil prices to drop. To withstand the economic blow, Gulf nations resorted to liquidating some international assets and offered portions of their foreign exchange reserves. Nevertheless, these actions proved insufficient, so they also borrowed a lot of hard currency from Western money markets. At present, because of the revival in oil rates, these countries are capitalising on the opportunity to bolster their financial standing, settling external financial obligations and balancing account sheets, a move necessary to improving their creditworthiness.

In past booms, all that central banks of GCC petrostates desired had been stable yields and few surprises. They often parked the cash at Western banks or bought super-safe government securities. Nonetheless, the contemporary landscape shows a different sort of scenario unfolding, as main banking institutions now get a lower share of assets compared to the burgeoning sovereign wealth funds in the area. Recent data demonstrates noteworthy developments, with sovereign wealth funds opting for a diversified investment approach by going into less main-stream assets through low-cost index funds. Moreover, they are delving into alternate investments like private equity, real estate, infrastructure and hedge funds. And they are additionally not any longer limiting themselves to traditional market avenues. They are supplying debt to finance significant takeovers. Furthermore, the trend showcases a strategic change towards investments in growing domestic and international companies, including renewable energy, electric automobiles, gaming, entertainment, and luxury holiday retreats to boost 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 estimated at two-thirds of a trillion dollars. In the past, most of this surplus would have gone straight to central banks' foreign exchange reserves. Historically, most the surplus from petrostate within the Gulf Cooperation Council GCC would be funnelled directly into foreign exchange reserves as a protective measure, particularly for those countries that peg their currencies towards the dollar. Such reserve are crucial to maintain balance and confidence in the currency during economic booms. But, within the previous couple of years, main bank reserves have scarcely grown, which shows a deviation of the traditional strategy. Furthermore, there is a noticeable absence of interventions in foreign exchange markets by these states, indicating that the surplus will be diverted towards alternative areas. Indeed, research shows that billions of dollars of the surplus are being used in revolutionary ways by different entities such as national governments, main banks, and sovereign wealth funds. These novel methods are payment of external debt, expanding financial help to allies, and buying assets both domestically and around the globe as Jamie Buchanan in Ras Al Khaimah would likely tell you.