Business | Economy
Gulf funds cut foreign buys with eye on future bargains
Economists say the battle against domestic inflation in the world's top oil-exporting region is capping spending at home, leaving sovereign funds that invest much of the surplus oil revenue struggling to find a profitable home for their money.
- Reuters
- Published: 23:50 April 20, 2008
Dubai/Rome: Gulf Arab exporters awash with cash from record oil income have put the brakes on foreign asset buys as the global credit crisis promises more bargains later and the political spotlight falls on how they invest.
Economists say the battle against domestic inflation in the world's top oil-exporting region is capping spending at home, leaving sovereign funds that invest much of the surplus oil revenue struggling to find a profitable home for their money.
"They are doing a little bit of hoarding right now while they take stock of the situation," said John Sfakianakis, chief econ-omist at SABB Bank, HSBC's Saudi affiliate.
"For two years they were on a buying spree. But there is an anticipation by sovereign wealth funds that financial assets will depreciate further as credit turmoil spreads in the West."
Acquisitions outside of the region by Gulf Arab buyers more than tripled to $89.13 billion in 2007 compared with the year earlier, according to London-based research firm Dealogic.
But buys slowed to $19.8 billion in the first quarter, down over 30 per cent from the fourth quarter despite some big-ticket deals that helped shore up Wall Street financial institutions.
Growing sovereign fund acquisitions have raised concern among US lawmakers about foreign influence and control over assets and questions as to whether investments are politically motivated. This may have made Gulf funds more cautious.
Aside from political scrutiny, funds have also taken some pain from their investments and are treading carefully until they get a better idea of whether the credit crisis has hit its nadir.
Citigroup and Merrill Lynch shares have lost about 20 per cent each since Kuwait's sovereign fund and Saudi billionaire Prince Al Waleed Bin Talal agreed to invest at least $5 billion in the banks.
"After initial forays, they've gotten their fingers burnt quite badly," said Ala'a Al Yousuf, chief economist in London at Gulf Finance House. "It showed that the worst was not over and they were a bit too hasty in buying into these institutions."
The massive transfer of wealth into the region from higher oil revenues has already unleashed startling economic growth among the Gulf's core Organisation of Petroleum Exporting Countries members.
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