Away from oil sovereign wealth funds investments globally

Away from oil sovereign wealth funds investments globally

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GCC states are venturing into emerging industries such as renewable energy, electric vehicles, entertainment and tourism.

In past booms, all that central banks of GCC petrostates wanted was stable yields and few shocks. They often times parked the bucks at Western banks or purchased super-safe government securities. However, the contemporary landscape shows an unusual scenario unfolding, as main banking institutions now are given a smaller share of assets when compared with the growing sovereign wealth funds within the region. Current data clearly shows noteworthy developments, with sovereign wealth funds opting for a diversified investment approach by going into less main-stream assets through low-cost index funds. Additionally, they are delving into alternate investments like private equity, real estate, infrastructure and hedge funds. And they are additionally no longer restricting themselves to traditional market avenues. They are providing funds to finance significant takeovers. Moreover, the trend demonstrates a strategic shift towards investments in emerging domestic and worldwide industries, including renewable energy, electric vehicles, gaming, entertainment, and luxurious holiday resorts to aid the tourism sector as Ras Al Khaimah based Benoy Kurien and Haider Ali Khan would likely attest.

A Significant share of the GCC surplus cash is now utilized to advance economic reforms and put into action impressive plans. It is critical to understand the circumstances that resulted in these reforms plus the shift in economic focus. Between 2014 and 2016, a petroleum oversupply powered by the emergence of the latest players caused an extreme decline in oil prices, the steepest in modern history. Furthermore, 2020 brought its own challenges; the pandemic-induced lockdowns repressed demand, once more causing oil prices to plummet. To survive the financial blow, Gulf states resorted to liquidating some international assets and sold portions of their foreign currency reserves. However, these actions were insufficient, so they additionally borrowed lots of hard currency from Western money markets. Today, because of the resurgence in oil rates, these states are capitalising on the opportunity to boost their financial standing, settling external financial obligations and balancing account sheets, a move necessary to strengthening their creditworthiness.

The 2022-23 account surplus of the Gulf's petrostates marked a turning point 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 straight into foreign exchange reserves as a precautionary strategy, particularly for those countries that tie their currencies to the dollar. Such reserves are crucial to sustain growth rate and confidence in the currency during economic booms. Nevertheless, within the previous several years, main bank reserves have actually hardly grown, which indicates a diversion from the conventional system. Additionally, there is a noticeable absence of interventions in foreign currency markets by these states, suggesting that the surplus has been diverted towards alternative options. Certainly, research shows that huge amounts of dollars of the surplus are now being employed in innovative ways by various entities such as national governments, central banks, and sovereign wealth funds. These novel strategies are repayment of external debt, extending financial assistance to allies, and buying assets both locally and around the globe as Jamie Buchanan in Ras Al Khaimah would probably inform you.