Cash-rich sovereign wealth funds from Asia and the Middle East may be turning cautious after getting burnt by investments in Western firms hit by the financial turmoil, analysts said.
Despite fresh opportunities, prudence now prevails as countries that own the funds sit on massive paper losses from investments made just before problems in the US housing market erupted into a full-blown global crisis.
Their multi-billion-dollar forays into Western financial giants such as Citigroup and Merrill Lynch appeared to be good bargains but the banking shakeout has since sharply reduced the value of their holdings.
“I think they’ve been burnt ... They are not sure this is the right time and they are more cautious,” said Zanny Minton-Beddoes, a Washington-based editor with The Economist.
“They put a lot of capital into financial institutions earlier on and they lost a lot of money,” said Minton-Beddoes, a former economist with the IMF.
Since last year, financial institutions hit by the unfolding slump in the US housing market have sought and received billions of dollars in fresh capital from sovereign wealth funds created to invest national savings and surpluses fed by crude-oil windfalls in the Gulf and rapid industrialization in Asia.
The funds have come under increasing scrutiny after making high-profile investments in distressed banks and companies.
They were also criticized as too opaque in their operations and, in some cases, stakes in strategic sectors like telecommunications were seen as potential threats to national security.
The IMF has estimated that sovereign wealth funds collectively hold total assets of between US$1.9 trillion and US$2.8 trillion and could be worth US$12 trillion by 2012, while the UN Conference on Trade and Development puts their current holdings at about US$5 trillion.
Christopher Balding, a researcher with the University of California, said sovereign wealth funds are by nature risk-averse and the ongoing financial turmoil would further accentuate that position.
“The current turmoil will, in my estimation, only reinforce the inherent conservative investment outlook,” said Balding, who specializes in international economics and sovereign wealth funds. “Right now there is a lot of fear in the marketplace from all investors ... Sovereign wealth funds are not interested in making more large investments because of how their previous investments have turned out.”
Singapore was among the most prominent investors with its two main funds, Temasek Holdings and the Government of Singapore Investment Corp (GIC), emerging as sought-after sources of capital by ailing Western financial firms.
Temasek invested US$8.3 billion into Merrill Lynch, which was later acquired by Bank of America in an all-stock deal worth US$50 billion, while GIC pumped billions into Citigroup and Swiss banking behemoth UBS.
GIC and Temasek both said they would continue to explore all investment opportunities but declined to give further details.
Funds from the oil-rich Middle East were also courted in the West.
The state-owned Kuwait Investment Authority injected a total of US$5 billion in Citigroup and Merrill Lynch in January.
The Abu Dhabi Investment Authority, controlled by the largest member of the United Arab Emirates, poured US$7.52 billion into Citigroup late last year.
Analysts said that sovereign wealth funds from Asia and the Middle East would continue to be major financiers, but any potential partnerships would be carefully weighed before the checkbook is taken out.
“Western financials need the capital and they [sovereign wealth funds] have the capital ... I just think they will be carefully considered,” Minton-Beddoes said.
Michael Backman, an author of several business books on Asia, said now was the time for the region’s funds to look at long-term investments in Western firms.
“It’s a good time to have a lot of cash. Assets are being over-sold and there will be plenty of bargains,” Backman said from London. “It’s an excellent opportunity for sovereign wealth funds to diversify to the developed economies and to do it at bargain basement prices.”
The CIA has a message for Chinese government officials worried about their place in Chinese President Xi Jinping’s (習近平) government: Come work with us. The agency released two Mandarin-language videos on social media on Thursday inviting disgruntled officials to contact the CIA. The recruitment videos posted on YouTube and X racked up more than 5 million views combined in their first day. The outreach comes as CIA Director John Ratcliffe has vowed to boost the agency’s use of intelligence from human sources and its focus on China, which has recently targeted US officials with its own espionage operations. The videos are “aimed at
STEADFAST FRIEND: The bills encourage increased Taiwan-US engagement and address China’s distortion of UN Resolution 2758 to isolate Taiwan internationally The Presidential Office yesterday thanked the US House of Representatives for unanimously passing two Taiwan-related bills highlighting its solid support for Taiwan’s democracy and global participation, and for deepening bilateral relations. One of the bills, the Taiwan Assurance Implementation Act, requires the US Department of State to periodically review its guidelines for engagement with Taiwan, and report to the US Congress on the guidelines and plans to lift self-imposed limitations on US-Taiwan engagement. The other bill is the Taiwan International Solidarity Act, which clarifies that UN Resolution 2758 does not address the issue of the representation of Taiwan or its people in
US Indo-Pacific Commander Admiral Samuel Paparo on Friday expressed concern over the rate at which China is diversifying its military exercises, the Financial Times (FT) reported on Saturday. “The rates of change on the depth and breadth of their exercises is the one non-linear effect that I’ve seen in the last year that wakes me up at night or keeps me up at night,” Paparo was quoted by FT as saying while attending the annual Sedona Forum at the McCain Institute in Arizona. Paparo also expressed concern over the speed with which China was expanding its military. While the US
SHIFT: Taiwan’s better-than-expected first-quarter GDP and signs of weakness in the US have driven global capital back to emerging markets, the central bank head said The central bank yesterday blamed market speculation for the steep rise in the local currency, and urged exporters and financial institutions to stay calm and stop panic sell-offs to avoid hurting their own profitability. The nation’s top monetary policymaker said that it would step in, if necessary, to maintain order and stability in the foreign exchange market. The remarks came as the NT dollar yesterday closed up NT$0.919 to NT$30.145 against the US dollar in Taipei trading, after rising as high as NT$29.59 in intraday trading. The local currency has surged 5.85 percent against the greenback over the past two sessions, central
RSS