Middle East wealth funds hunt for bargain deals from COVID-19 sell-offs

Global wealth funds show increase appetite for gold, says Invesco report

  
Image used for illustrative purpose. Dubai Marina skyline.

Image used for illustrative purpose. Dubai Marina skyline.

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Sovereign wealth funds in the Middle East are likely to make further investments outside the region as asset prices have plunged considerably due to the coronavirus outbreak, a new report suggests.

Many of the cash-rich sovereigns in the region are now increasing exposure to both emerging and developed Europe, with communications and airports particularly attracting the “highest level of interest” among those on the hunt for good deals in the infrastructure asset class, according to US-based investment management company Invesco.

“Sovereigns in the Middle East look towards Europe for bargains,” Invesco said in its report. “The pandemic has created opportunities for those able to move quickly,” it added.

Wealth funds in the region have recently made acquisition moves outside the region. Saudi Arabia’s Public Investment Fund (PIF) is currently in talks to take over the United Kingdom’s premier league football team Newcastle United for approximately $373 million. The state-owned fund also acquired in April an 8.2 percent stake in Carnival Corp, the world’s biggest cruise operator.

According to Invesco’s report, sovereigns in the Middle East also plan to continue allocating to fixed income over the next 12 months, with more than half (57 percent) aiming to acquire more assets in the same segment. About 43 percent also seek to increase allocations to infrastructure and 50 percent to private equity.

“The market turmoil in March and April saw asset prices fall considerably, especially as some investors sold securities to ensure liquidity,” noted Zainab Kufaishi, head of Middle East and Africa at Invesco.

Invesco’s eight annual study details the views of 139 chief investment officers, heads of asset classes and senior strategists at 83 sovereign funds and 56 central banks, who together manage $19 trillion in assets.

Despite the economic challenges posed by the pandemic, sovereigns are “better prepared”, according to Invesco. This is because, having learned their lessons from the global financial crisis, they have implemented some changes, including building large cash reserves and making organisational improvements for managing liquidity.

Overall, 43 percent of sovereigns are looking to increase allocations to fixed income over the next year. Both central banks and a small but significant group of global sovereigns have also shown increasing appetite for gold.

About 4.8 percent of total central bank reserve portfolios are now allocated to gold, up from 4.2 percent in 2019.

Among those who are investing in gold, about 40 percent opt for Futures, due to their flexibility and returns, while 40 percent are in favour of gold-backed exchange-traded funds (ETFs). These investment vehicles have expanded considerably in recent years, up by 80 percent over the past year alone.

(Reporting by Cleofe Maceda; editing by Seban Scaria)

Cleofe.maceda@refinitiv.com

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