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GCC Foreign Assets Shrink by 8.3 Per Cent in First Half
DUBAI - Total foreign assets held by GCC central banks and sovereign wealth funds shrank by 8.3 per cent during the first half of the year to just over $1.1 trillion by the end of June, according to an estimate by an authoritative US-based financial analysis firm.
These combined foreign assets stood at around $1.2 trillion at the end of December. Much of the decline was driven by the Saudi Arabian Monetary Agency, or Sama, which manages the bulk of Saudi foreign assets, RGE Monitor said in its latest report.
“Sama’s non-reserve foreign assets, which consist mostly of bonds and US dollars, have fallen from about $412 billion last fall to $365 billion in May 2009,” the report said.
The UAE accounts for the second-largest amount of these overseas assets, with around $350 billion. However, RGE Monitor’s estimate of UAE assets excluded those held by Abu Dhabi-based Mubadala, the country’s largest soveriegn wealth funds, as well as the foreign holdings of some Dubai-based funds.
Kuwait’s sovereign fund managed just under $240 billion, while Qatari funds held assets worth over $60 billion. The remainder is managed by central banks in the region, the report suggested.
This latest estimate of the overall size of the Gulf’s sovereign funds is smaller than those of other recent estimates, including an analysis by McKinsey Global Institutes suggesting that the sovereign investors of GCC nations managed close to $2 trillion at the end of 2008.
RGE Monitor said that the value of GCC foreign assets likely peaked at around $1.4 trillion in June 2008. “They began to tumble on lower returns in equities, real estate and private equity in the fall,” it said.
Much of the decline in Sama’s assets was due to a drawdown of its deposits, the report said. “The holdings of foreign securities have fallen much less. These funds have likely been utilised to avoid having to borrow domestically to meet the governments 2009 fiscal spending needs.”
The report notes that some of the UAE investment agencies, including the Abu Dhabi Investment Authority and the Abu Dhabi Investment Council, continue to rival Saudi Arabia’s sovereign funds. “Saudi Arabia’s larger population and greater share of Opec production cuts have led it to draw on some of its assets. The UAE’s fiscal spending needs have been somewhat lower, and the recent reflation rally boosted the value of some assets,” RGE Monitor said.
Abu Dhabi’s asset allocation has shifted over the last year, the report added. “Not only has Abu Dhabi needed to utilise its liquid assets to support its banks, but it is also believed to have provided the capital for the bonds issued by Dubai and purchased by the UAE central bank in February this year.
“Such a purchase may just be reflected in a shifting from one USD denominated claim to another,” it said. ”The need to do so, however, underscored the importance of liquid assets.”
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