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 states are seizing the ability presented by high oil rates to boost 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, most of this surplus would have gone directly into central banks' foreign exchange reserves. Historically, most the surplus from petrostate in the Gulf Cooperation Council GCC would be funnelled directly into foreign exchange reserves as a precautionary measure, especially for those countries that peg their currencies to the dollar. Such reserves are necessary to maintain stability and confidence in the currency during economic booms. However, in the previous couple of years, central bank reserves have scarcely grown, which suggests a change from the old-fashioned system. Also, there has been a noticeable lack of interventions in foreign exchange markets by these states, indicating that the surplus has been diverted towards alternative avenues. Certainly, research shows that huge amounts of dollars of the surplus are increasingly being used in innovative methods by different entities such as national governments, central banks, and sovereign wealth funds. These novel methods are repayment of outside financial obligations, extending financial help to allies, and acquiring assets both locally and around the globe as Jamie Buchanan in Ras Al Khaimah may likely tell you.

A Significant share of the GCC surplus money is now used to advance financial reforms and carry out impressive strategies. It is vital to understand the circumstances that produced these reforms as well as the shift in economic focus. Between 2014 and 2016, a petroleum glut powered by the emergence of the latest players caused an extreme decrease in oil rates, the steepest in contemporary history. Furthermore, 2020 brought its own challenges; the pandemic-induced lockdowns repressed demand, once again causing oil rates to plummet. To hold up against the financial blow, Gulf countries resorted to liquidating some international assets and sold portions of their foreign exchange reserves. Nevertheless, these precautions proved insufficient, so they additionally borrowed a lot of hard currency from Western capital markets. At present, with all the revival in oil prices, these states are capitalising on the opportunity to strengthen their financial standing, paying off external financial obligations and balancing account sheets, a move critical to improving their creditworthiness.

In previous booms, all that central banks of GCC petrostates wanted had been stable yields and few shocks. They often parked the money at Western banks or bought super-safe government bonds. But, the contemporary landscape shows a different sort of situation unfolding, as central banks now are given a lesser share of assets in comparison to the growing sovereign wealth funds within the region. Current data 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. Moreover, they have been delving into alternate investments like private equity, real estate, infrastructure and hedge funds. And they are additionally not restricting themselves to conventional market avenues. They are supplying debt to fund significant acquisitions. Moreover, the trend demonstrates a strategic change towards investments in growing domestic and international industries, including renewable energy, electric automobiles, gaming, entertainment, and luxurious holiday resorts to aid the tourism industry as Ras Al Khaimah based Benoy Kurien and Haider Ali Khan would likely attest.