Away from oil sovereign wealth funds investments in the world

Away from oil sovereign wealth funds investments in the world

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The Arab gulf states are redirecting their surplus investments towards innovative avenues- learn more.

A great share of the GCC surplus money is now used to advance economic reforms and execute bold plans. It is critical to understand the conditions that produced these reforms plus the change in economic focus. Between 2014 and 2016, a petroleum flood driven by the emergence of new players caused a drastic decrease in oil rates, the steepest in contemporary history. Furthermore, 2020 brought its very own challenges; the pandemic-induced lockdowns repressed demand, once again causing oil rates to drop. To withstand the monetary blow, Gulf nations resorted to liquidating some international assets and offered portions of their foreign exchange reserves. Nonetheless, these actions proved insufficient, so they also borrowed a lot of hard currency from Western capital markets. Today, with the resurgence in oil rates, these states are benefiting of the opportunity to boost their financial standing, paying off external debt and balancing account sheets, a move imperative to strengthening their creditworthiness.

In past booms, all that central banks of GCC petrostates desired had been stable yields and few shocks. They frequently parked the money at Western banks or bought super-safe government bonds. However, the modern landscape shows an unusual situation unfolding, as main banks now get a lower share of assets compared to the growing sovereign wealth funds in the region. Recent data shows 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 personal equity, real estate, infrastructure and hedge funds. Plus they are also no more limiting themselves to old-fashioned market avenues. They are providing debt to fund significant purchases. Moreover, the trend showcases a strategic change towards investments in growing domestic and international companies, including renewable energy, electric automobiles, gaming, entertainment, and luxury holiday resorts to aid the tourism sector 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 milestone estimated at two-thirds of a trillion dollars. In the past, the majority of this surplus would have gone straight into central banks' foreign currency reserves. Historically, most the surplus from petrostate in the Gulf Cooperation Council GCC would be funnelled straight into foreign currency reserves as a precautionary strategy, especially for those countries that peg their currencies to the US dollar. Such reserves are necessary to preserve stability and confidence in the currency during financial booms. However, into the past several years, central bank reserves have actually hardly grown, which suggests a diversion of the conventional system. Moreover, there is a noticeable lack of interventions in foreign currency markets by these states, hinting that the surplus is being redirected towards alternative avenues. Certainly, research has shown that vast amounts of dollars of the surplus are increasingly being utilized in innovative methods by various entities such as for example national governments, main banking institutions, and sovereign wealth funds. These novel methods are repayment of outside debt, expanding monetary assistance to allies, and buying assets both locally and internationally as Jamie Buchanan in Ras Al Khaimah would probably tell you.