Away from oil sovereign wealth funds investments in the world

Away from oil sovereign wealth funds investments in the world

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

A huge share of the GCC surplus money is now used to advance economic reforms and carry out aspiring strategies. It is important to understand the conditions that produced these reforms and the shift in financial focus. Between 2014 and 2016, a petroleum glut made by the coming of the latest players caused an extreme decrease in oil rates, the steepest in modern history. Additionally, 2020 brought its challenges; the pandemic-induced lockdowns repressed demand, once more causing oil rates to drop. To hold up against the monetary blow, Gulf states resorted to liquidating some foreign assets and offered portions of their foreign exchange reserves. However, these actions proved insufficient, so they also borrowed a lot of hard currency from Western capital markets. Today, aided by the revival in oil rates, these states are capitalising on the opportunity to bolster their financial standing, settling external financial obligations and balancing account sheets, a move necessary to enhancing their credit reliability.

In previous booms, all that central banking institutions of GCC petrostates desired had been stable yields and few surprises. They frequently parked the bucks at Western banks or purchased super-safe government bonds. However, the modern landscape shows an unusual situation unfolding, as central banks now receive a lower share of assets when compared with the growing sovereign wealth funds within the region. Present data reveals noteworthy developments, with sovereign wealth funds deciding on 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. And they are also no further restricting themselves to conventional market avenues. They are providing funds to finance significant acquisitions. Furthermore, the trend highlights a strategic shift towards investments in appearing domestic and worldwide industries, including renewable energy, electric vehicles, gaming, entertainment, and luxurious holiday resorts to support 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 within the Gulf Cooperation Council GCC would be funnelled directly into foreign currency reserves as a precautionary strategy, specifically for those countries that tie their currencies to the dollar. Such reserve are essential to sustain balance and confidence in the currency during financial booms. Nonetheless, in the previous few years, main bank reserves have scarcely grown, which shows a deviation of the traditional 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 huge amounts of dollars from the surplus are now being employed in revolutionary ways by different entities such as national governments, main banks, and sovereign wealth funds. These unique strategies are payment of external debt, expanding economic help to allies, and acquiring assets both domestically and around the globe as Jamie Buchanan in Ras Al Khaimah may likely inform you.