The Gulf’s sovereign wealth funds ‘need to be deployed’ amid coronavirus crisis, expert says
Stocks News :
The Gulf region’s twin shock of the coronavirus pandemic and severely weakened oil prices continues to pressure its economies, with new forecasts over the weekend painting a grim picture.
As governments around the world roll out stimulus measures and rescue plans in an effort to save their hard-hit private sectors and most hard-hit industries, some have called for sovereign wealth funds — which are particularly large in the Gulf — to step in.
“I think sovereign wealth funds — and by all accounts there are about two trillion dollars of assets at these regional sovereign wealth funds — these need to be deployed,” Tarek Fadlallah, CEO at Nomura Asset Management Middle East, told CNBC’s Capital Connection on Monday.
“Sovereign wealth funds have multiple objectives, but one of them is that they are rainy day funds, and this is a rainy day. So the argument is that in the same way that the Federal Reserve and the government of the U.S. have stepped in to correct some of the market inefficiencies and market dislocations, there is a role for sovereign wealth funds to do exactly the same in the region.”
The call is the latest in a line of similar suggestions from economists and experts, as the Middle East’s oil-dependent economies face dire contractions in business activity and economic growth.
S&P Global over the weekend issued its forecast for Abu Dhabi, warning that “lower oil production and COVID-19 will reduce economic output by about 7.5% in 2020,” with a gradual recovery beginning in 2021.
The International Monetary Fund forecast Saudi gross domestic product (GDP) to fall by 2.3% in April, but Oxford Economics more recently forecast a decline of just under 8% this year for overall GDP and an 8.2% decline for the non-oil economy.
Gulf wealth funds making strategic foreign investments
Saudi Arabia’s Public Investment Fund, with more than $300 billion in assets under management, is well-positioned to step in and support the Saudi economic recovery, Fadlallah says.
The kingdom’s fund has recently been on a spending spree, buying substantial stakes in major Western businesses currently trading at multi-year lows as a result of the pandemic. They include roughly half-billion-dollar stakes in companies including Carnival Corp, Live Nation, Walt Disney, Marriott International, Bank of America and Facebook, among others, as well as a $714 million stake in Boeing.
At the end of May, the Saudi central bank transferred $40 billion of its foreign reserves to the kingdom’s wealth fund, which the Saudi finance minister called an “exceptional one-off transaction that came after a lot of deliberation.”
