Sovereign Wealth Funds Snub US For Domestic Projects
With all this talk about bailouts here in the U.S., one name is conspicuously absent: Sovereign Wealth Funds. These trillion-dollar national funds made news earlier in the year as they dove headway into big U.S. banks when they began to teeter. The SWFs figured they were buying low, severely underestimating the bottom of the market. So rather than get a bargain, they took a beating – and are now making a hasty retreat from the West.
The withdrawal of SWFs from American markets means that taxpayers must pick up the slack to the tune of $700 billion (or more). It could also mean that the disappearance of this source of capital could further delay any sustained recovery.
The Persian Gulf SWFs, in particular, are redirecting their funds to domestic projects, where they see a higher payoff, according to various news sources.
Dubai International Capital is turning its attention the Middle East, China and India.
Investment funds in Kuwait, Qatar, Dubai and Abu Dhabi are revamping their investment strategies after losing billions of dollars buying shares in Western companies.
The Kuwait Investment Authority (KIA) recently shifted $4 billion from Western markets into its own bourse. At the same time, the Qatar Investment Authority has begun a bailout of local banks. Dubai International Capital (DIC) is concentrating on emerging markets. And there are reports that the $700-billion Abu Dhabi Investment Authority is investing more in to local markets.
Sameer al-Ansari, the chairman and chief executive of DIC, was quoted as saying that the balance of economic power was shifting east and that the fund’s investments would follow.
Samba Financial Group, a Saudi Arabian bank, said that the Gulf’s wealth funds were likely to lose about $190 billion this year, effectively flattening profits gained from the high price of oil.
If you’re the kind of investor who likes to follow the money, the SWFs are showing that China, India and other emerging economies with low debt on the books are the places to be. But as we’ve all seen, the SWFs have been painfully wrong before.
The real lesson we’re seeing from the meltdown and the SWF shift of capital is this: Just because you’re fabulously wealthy doesn’t mean you’re innately smart.