(MENAFN- Khaleej Times) Major sovereign governments and sovereign wealth funds, or SWFs, in the Middle East are investing less globally than they have in the three years, giving preference to spend locally in the wake of the Arab Spring, according to Invesco, a global investment management company.
These funds account for 35 per cent of global SWF flows, representing $1.6 trillion, a huge market which major global economies, including the UK, rely on for investment, according to the third annual Invesco Middle East Asset Management Study released on Monday.
The international flow of money directly from GCC sovereign governments and from SWFs have changed considerably in the light of the current unrest, with large commodity-linked surpluses in these regions increasingly being put to use locally, Invesco said.
"It's clear that sovereign states are redirecting revenues and SWF assets from international investments back into the Middle East," Invesco Middle East head Nick Tolchard said.
The most common change across the region is money into local wage inflation, with healthcare and education a real focus for Saudi Arabia and Oman, Tolchard said, adding that major infrastructure is a focus for Qatar due to the World Cup, and there are significant developments taking place in Abu Dhabi as it seeks to grow and set up as a major financial centre.
"Western governments, including the UK, have approached SWFs from the Middle East to help with economic recovery, but many will fight a losing battle. There is certainly less money to invest internationally so the stakes are higher. Those courting GCC money from outside the region will only win with a deep understanding of what is driving the thinking of SWFs, and a long term commitment to building bilateral relationships which add value to their investment policy," he said.
The available surplus, or investable assets, of governments in the GCC region is forecast to reduce by nine per cent in 2012, compared to 2011 and surplus forecasts have been revised downwards since the Arab Spring.
This is illustrated by the fact that forecast funding rates for the recipient SWFs have declined this year. In 2011, funding rates grew at 13 per cent compared to an increase in GCC government revenue of 25 per cent, this year funding rates rose just 8 per cent, despite GCC government revenue increasing by 31 per cent.
There is an expectation that spending will continue to increase over time potentially outstripping commodity prices and shrinking surpluses further.
Of the sovereign surplus that is available for SWFs, those with local objectives are expected to benefit.
Invesco forecasts SWF assets invested in benchmark driven SWFs who prioritise international asset manager products or ETFs have fallen by one per cent since the beginning of the Arab Spring in 2011. At the same time sovereign wealth fund assets allocated to SWFs investing locally, in infrastructure for example, have risen by 10 per cent, which illustrates a major shift.
The clear shift in terms of geographic allocation of investment money has been towards the local region. Investment in assets related to the GCC moved up from 33 per cent to 56 per cent, with local bonds seeing a rise from six per cent of SWF investable assets to 14 per cent. Property and infrastructure have also take a large proportion of the investable assets from these SWFs, 13 per cent and 14 per cent respectively.
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