SWFs can’t shore up markets
Middle Eastern and Asian sovereign wealth funds (SWFs) – large pools of capital controlled by governments – have been on quite a shopping spree of late.
China’s CIC is putting $5bn into Morgan Stanley and Singapore is investing $11bn in UBS; Abu Dhabi, Singapore and Kuwait are shoring up Citigroup.
With an estimated $3trn at sovereign wealth funds’ disposal, their willingness to prop up struggling Western banks has fuelled hopes that they could underpin equities in general.
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But that seems unlikely, says Lex in the FT. Their firepower is too small compared with the size of financial markets “to provide genuine support across all equities”. A portion of the funds will be kept at home: China’s CIC is set to devote 66% of the $200bn it has to spend – a first slice of China’s $1.5trn of foreign exchange reserves – to domestic banks.
Moreover, so far SWFs have taken relatively small, politically uncontroversial stakes. If they were to increase their influence at “anywhere near the pace” that might justify the notion that they could bolster markets, they would risk hitting “a brick wall of protectionism”.
