Away from oil sovereign wealth funds investments in the world

Away from oil sovereign wealth funds investments in the world

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GCC states are venturing into growing companies such as for example renewable energy, electric cars, entertainment and tourism.

A huge share of the GCC surplus money is now used to advance economic reforms and implement ambitious strategies. It is important to examine the conditions that produced these reforms plus the change in economic focus. Between 2014 and 2016, a petroleum oversupply made by the emergence of new players caused an extreme decrease in oil rates, the steepest in modern history. Additionally, 2020 brought its own challenges; the pandemic-induced lockdowns repressed demand, once again causing oil rates to drop. To handle the economic blow, Gulf countries resorted to liquidating some foreign assets and sold portions of their foreign exchange reserves. Nonetheless, these actions proved insufficient, so they also borrowed plenty of hard currency from Western money markets. Today, with all the resurgence in oil rates, these states are taking advantage on the opportunity to strengthen their financial standing, settling external debt and balancing account sheets, a move critical to strengthening their credit reliability.

In previous booms, all that central banks of GCC petrostates wanted had been stable yields and few shocks. They frequently parked the cash at Western banks or purchased super-safe government bonds. Nevertheless, the contemporary landscape shows an unusual situation unfolding, as central banking institutions now are given a smaller share of assets compared to the growing sovereign wealth funds in the region. Present data clearly shows noteworthy developments, with sovereign wealth funds opting for a diversified investment approach by venturing into less main-stream assets through low-cost index funds. Moreover, they have been delving into alternate investments like private equity, real estate, infrastructure and hedge funds. Plus they are also no longer restricting themselves to conventional market avenues. They are supplying debt to finance significant purchases. Moreover, the trend demonstrates a strategic shift towards investments in emerging domestic and worldwide industries, including renewable energy, electric cars, gaming, entertainment, and luxury holiday retreats to promote the tourism sector as Ras Al Khaimah based Benoy Kurien and Haider Ali Khan would likely attest.

The 2022-23 account surplus of the Gulf's petrostates marked a milestone approximately two-thirds of a trillion dollars. In the past, most of this surplus would have gone straight to central banks' foreign exchange reserves. Historically, most the surplus from petrostate within the Gulf Cooperation Council GCC would be funnelled directly into foreign currency reserves as a precautionary measure, particularly for those countries that peg their currencies towards the dollar. Such reserve are essential to preserve stability and confidence in the currency during economic booms. But, within the previous few years, main bank reserves have barely grown, which suggests a diversion of the traditional strategy. Additionally, there has been a conspicuous absence of interventions in foreign currency markets by these states, hinting that the surplus is being diverted towards alternative areas. Indeed, research indicates that huge amounts of dollars from the surplus are increasingly being utilized in innovative means by different entities such as nationwide governments, main banks, and sovereign wealth funds. These novel methods are payment of external financial obligations, extending monetary assistance to allies, and acquiring assets both locally and internationally as Jamie Buchanan in Ras Al Khaimah may likely tell you.