Reuters: Gulf sovereign wealth funds may lose $ 300 billion

A report by Reuters said that the Gulf sovereign wealth funds may witness a decrease in their assets by about 300 billion dollars at the end of this year, while the funds of oil producing countries across the world tend to get rid of shares worth 225 billion dollars after the falling oil prices and the Corona virus epidemic affected revenues Those countries.

The agency quoted a strategist at "JP Morgan" Nicholas Bannigerzoglu as saying that the spread of the virus at a rapid pace caused turmoil in the global economy, pushing the markets to decline, and incurred sovereign wealth funds, whether in oil or non-oil countries, losses in shares approaching one trillion dollars.

The report stated that the governments in those countries face a double financial problem represented in the decline in revenues due to the sharp drop in oil prices and the increase in spending due to the exceptional situation.

Banegeritzoglu said that except for the Norwegian wealth fund, sovereign wealth funds had disposed of shares worth between $ 100 and $ 150 billion in recent weeks, and that it was likely to sell another $ 50 billion to $ 75 billion in the coming months.

Most oil-based funds have to maintain significant reserve liquidity in anticipation of a possible collapse in crude prices, which could prompt governments to request funds, according to the Reuters report.

The exact size of sovereign wealth fund investments or the instruments of these investments are not disclosed. Rather, many of them do not reveal the value of the assets they manage.

Defense of the currency
According to the Reuters report, energy-backed and state-backed funds represent a large proportion of the total assets of the sovereign wealth funds of around $ 8.40 trillion that have accumulated to be a bulwark for countries when oil revenues are depleted.

Sovereign funds have become major players in global stock markets, accounting for between 5% and 10% of these markets and an important source of income for asset managers on Wall Street.

The report said that the governments of a number of Gulf countries, including Saudi Arabia and Abu Dhabi in addition to Nigeria and Angola, were severely affected by the decline in global stocks by nearly 20%, adding that the budgets of these countries are under pressure due to the drop in oil prices, which approached two thirds this year.

The agency quoted the chief economist for the Middle East and North Africa at the International Finance Institute, Gabriz Iradian, as saying that Gulf sovereign wealth funds may see their assets drop by $ 296 billion by the end of this year.

The stock market losses constitute about $ 216 billion of this decrease, while governments suffering from tight liquidity withdrew another $ 80 billion.

The central banks in Saudi Arabia, the United Arab Emirates and Qatar have offered incentives totaling $ 60 billion, despite the fact that the expectations of tight liquidity have put pressure on the Gulf currencies pegged to the US dollar decades ago.

Reuters also quoted Danai Kyriakopoulou, chief economist at the Official Forum of Monetary and Financial Institutions, a think tank, as saying, "One of the questions is whether some of this money will be used to support currencies as some legal frameworks allow that."

"In the past ten years, some countries transferred reserves from their central banks to sovereign funds, which allowed them to invest in riskier assets, as they have more flexibility," she added.

"And now that may be a problem because you have more reserves in the sovereign fund than the central bank has when you need the reserves to defend the currency."

Saudi Arabia is among the countries that in recent years transferred reserves from its central bank to support the Public Investment Fund, which is the sovereign investment vehicle in the Kingdom and holds stakes in Uber and Lucid Motors for the manufacture of electric cars, and its managed assets amounted to about $ 300 billion in 2019.

In the year 2015, which witnessed the previous collapse in oil prices, the Saudi central bank, which was then overseeing a larger segment of the Kingdom's investments, especially in securities such as US Treasury bonds, intended to reduce its external assets by more than $ 100 billion to cover a huge budget deficit Country.