Sovereign Wealth Funds From Oil-Rich Countries Are Dumping Stocks Big Time

on Mar 29, 2020
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  • JPMorgan analysts says sovereign wealth funds from Middle East and Africa have already sold more than $100 billion worth of stocks
  • “It’s not a panic move but rather gradual [selling],” says an analyst from State Street Global Advisors
  • Low oil prices and declining stock market are triggering billions of losses for Gulf countries

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Some of the world’s biggest sovereign wealth funds, from oil-rich countries, could dump more than $200 billion worth of stocks.

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According to JPMorgan strategist Nikolaos Panigirtzoglou, sovereign wealth funds across the globe lost around $1 trillion of funds invested in equities due to the coronavirus outbreak. As a result, high oil exporters, mostly located in the Middle East and Africa, are facing double trouble – extremely low oil prices and equity losses in the stock market.

“It makes sense for sovereign funds to frontload their selling, as you don’t want to be selling your assets at a later stage when it is more likely to have distressed valuations,” said Panigirtzoglou.

According to him, these funds have already sold $100 billion to $150 billion worth of stocks, while the remaining $50 billion to $75 billion is likely to be sold in the coming weeks and months.

“There has been a shift toward cash since the crisis started, but it’s not a panic move but rather gradual,” said Elliot Hentov, head of policy research at State Street Global Advisors.

Some estimates show that wealth funds from oil-rich countries have accounted for roughly 5-10% of total holdings on the global stock market. It is estimated that assets of sovereign wealth funds are worth more than $8 trillion.

Another estimate, from the Institute of International Finance (IIF), shows that Gulf sovereign wealth funds could see the value of their assets decline by nearly $300 billion, with around 70% of that figure coming from stock market losses.

“In the previous 10 years some countries moved reserves from their central banks to sovereign funds, allowing them to invest in more risky assets as they have greater flexibility,” said Danae Kyriakopoulou, chief economist of the Official Monetary and Financial Institutions Forum (OMFIF).

“Now, that may be a problem, because you have more reserves in the sovereign fund than the central bank when you may need the reserves to defend the currency.”

It is estimated that Saudi Arabia, as the biggest oil exporter in the world, has around $300 billion in assets under management.

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