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 opportunity presented by high oil prices to enhance their creditworthiness.

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 to central banks' foreign exchange reserves. Historically, most the surplus from petrostate in the Gulf Cooperation Council GCC would be funnelled directly into foreign currency reserves as a protective measure, specifically for those countries that tie their currencies towards the US dollar. Such reserves are essential to preserve growth rate and confidence in the currency during financial booms. However, within the previous several years, main bank reserves have hardly grown, which shows a divergence of the traditional strategy. Also, there is a conspicuous absence of interventions in foreign currency markets by these states, indicating that the surplus has been redirected towards alternative options. Certainly, research shows that billions of dollars from the surplus are being utilized in revolutionary methods by different entities such as national governments, central banks, and sovereign wealth funds. These novel strategies are repayment of external debt, expanding economic help to allies, and buying assets both locally and around the globe as Jamie Buchanan in Ras Al Khaimah would probably inform you.

In previous booms, all that central banking institutions of GCC petrostates desired had been stable yields and few shocks. They often parked the money at Western banks or purchased super-safe government securities. But, the modern landscape shows a new scenario unfolding, as central banks now receive a lower share of assets in comparison to the burgeoning sovereign wealth funds in the area. Current data clearly shows noteworthy developments, with sovereign wealth funds deciding on a diversified investment approach by going into less main-stream assets through low-cost index funds. Additionally, they have been delving into alternate investments like private equity, real estate, infrastructure and hedge funds. And they are also no more limiting themselves to old-fashioned market avenues. They are supplying funds to fund significant purchases. Moreover, the trend showcases a strategic shift towards investments in appearing domestic and worldwide companies, including renewable energy, electric automobiles, gaming, entertainment, and luxury holiday resorts to support the tourism sector as Ras Al Khaimah based Benoy Kurien and Haider Ali Khan would likely attest.

A great share of the GCC surplus cash is now utilized to advance economic reforms and follow through bold strategies. It is vital to understand the circumstances that led to these reforms and the change in financial focus. Between 2014 and 2016, a petroleum glut driven by the the rise of the latest players caused a drastic decline in oil rates, the steepest in modern history. Additionally, 2020 brought its very own challenges; the pandemic-induced lockdowns repressed demand, once more causing oil prices to drop. To hold up against the economic blow, Gulf states resorted to liquidating some foreign assets and offered portions of their foreign currency reserves. Nevertheless, these measures were insufficient, so they additionally borrowed lots of hard currency from Western capital markets. Now, with the resurgence in oil prices, these countries are taking advantage on the opportunity to beef up their financial standing, paying off external financial obligations and balancing account sheets, a move necessary to strengthening their creditworthiness.

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