The sovereign wealth funds are the national investments many countries have made for their future generations. Some of these funds are huge, as seen by the figures presented in the next paragraph. The sovereign wealth funds have huge clout internationally - whether economic or geopolitical. Collectively or singularly, they can move markets, destabilise currencies or change governments.
The petrodollar wealth funds emerged in the 1970s, when the oil producing economies had surplus funds which they did not know where to park. Henry Kissinger was the brain behind the petrodollar sovereign wealth funds. As America's chief strategist, he wanted to ensure that the surplus funds of the oil producing economies were invested in dollars - hence petrodollars.
The assets of some largest sovereign wealth funds are as follows (as on 1st July 2015). Nigeria, which is awash in oil, has never been able to build up a sovereign fund. Most of the national wealth has been spirited away by the politicians and military. Temasek (the sovereign wealth fund of Singapore) made three investments in Pakistan. Unfortunately all of them went awry. Temasek lost USD 600 million alone on their investment in NIB Bank.
So what is the current scenario? The drop in oil prices since June 2015 has upset the national budgets of the oil producing countries. The six GCC countries (Saudi Arabia, Oman, the UAE, Qatar, Kuwait, and Bahrain) will need to generate USD 200 billion this year.
They are doing this by liquidating their sovereign holdings gradually. Russia is hurting economically. Oil and gas prices are down. Western sanctions are having an impact. The central bank of Russia is spending billions of dollars in propping up the rouble. The big question in China, is the landing - hard or soft? I personally believe that China cannot avoid a hard landing. In the last two months the Chinese economy has rebounded somewhat. But in the long term (1-3 years) the Chinese economy may slow to 4 - 5 %. China will need to liquidate some of its gigantic surpluses to manage its monetary shortfalls.
However the sovereign wealth funds of the world face a major strategic threat. Most of their investments are in the USA, either in the US treasury or the stock market. The official reserves of China are USD 3.387 trillion, Japan USD 1.268 trillion, and Saudi Arabia USD 681 billion. Most of these and those of other countries are invested in the USA. The US stock market capitalisation is currently at USD 18,500 trillion.
The four most valuable companies in the world are American - Apple, Exxon, Google, and Berkshire Hathaway. Petro China comes fifth at USD 220 billion. The USA is sitting pretty. It towers like a colossus over the world. In a crunch situation the USA can sequester or freeze any foreign investment. The sovereign wealth funds are at the mercy of the US government.
(The writer is the former Executive Director of the Management Association of Pakistan)
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Name Assets (USD I Billions)
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Government Pension Fund, Norway 740
Abu Dhabi Investment Authority 632
SAFE Investment Company China 568
SAMA Foreign Holdings, Saudi Arabia 533
China Investment Corporation 482
Kuwait Investment Authority 342
Hong Kong Monetary Authority 299
Singapore Fund 248
National Welfare Fund, Russia 176
National Security Fund, China 161
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