Sovereign investments in Gulf states have not slowed amid the Iran war
The war with Iran had little or no impact on the investment appetite of Gulf sovereign wealth funds, as most capital coming from sovereign investors in hydrocarbon-rich Gulf states continued to flow into developed market assets during the second quarter of the year.
According to a June report by Global SWF, most government funds in the six Gulf Cooperation Council countries, which manage total assets of about $5.7 trillion, maintained their usual quarterly investment pace.
The continued flow of investments contradicted the expectations of markets and analysts, who expected a tightening in sovereign spending as a result of the economic uncertainty associated with the war.
The institution said that these funds “have not shown any signs of slowing down so far, but rather achieved a stronger average investment pace during the past quarter compared to the average of the five years prior to the outbreak of the war.”
The report indicated that four of the five largest sovereign investors in the region, namely: Abu Dhabi Investment Authority, Mubadala Investment, and Al Emad in the UAE, in addition to the Public Investment Fund in Saudi Arabia, continued to maintain the high investment levels they recorded during the past five years.
The Qatar Investment Authority was the only exception, as the pace of its investments declined by about two billion dollars per quarter since March 1, according to the report.
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The US and Israeli strikes on Iran, and Tehran's military responses that began on February 28, have led to business disruptions and affected the travel, tourism and hospitality sectors in the region.
Iran's closure of the Strait of Hormuz, through which about a fifth of global oil trade usually passes, has also sparked a global energy crisis, raising fears of rising inflation and a slowdown in the global economy.
Continued investment momentum
Despite these circumstances, cross-border deal-making and investment flows within and outside the region continued, and long-term capital commitments remained unaffected.
The Gulf region is home to some of the world's largest sovereign wealth funds, which invest on behalf of governments to achieve long-term returns.
The UAE, the second largest Arab economy, is home to a number of the most prominent sovereign investors, including the Abu Dhabi Investment Authority and Mubadala Investment and Development in Abu Dhabi, in addition to the Investment Corporation of Dubai.
The UAE is ranked as the largest sovereign investor in the Middle East and the fourth largest country globally in terms of total sovereign assets, which amounted to $3.08 trillion in March according to Global SWF.
The Abu Dhabi Investment Authority is considered the largest sovereign wealth fund in the Gulf, with assets estimated at about $1.1 trillion, although it does not officially announce the size of its assets. This year, the fund celebrates its 50th anniversary, and invests directly and indirectly in stocks, bonds, infrastructure, private capital and real estate around the world.
Capital flows
According to the report, while most Gulf funds continue to direct their investments towards developed markets, the Abu Dhabi Investment Authority and the Saudi Public Investment Fund more prefer investment opportunities in emerging markets.
The report noted that “capital continued to flow towards American companies and funds, while both the Abu Dhabi Investment Authority and the Public Investment Fund showed a preference for China and other emerging markets.”
Since the outbreak of the war, the Saudi Public Investment Fund has invested $6.1 billion in emerging markets, more than double the $2.43 billion it pumped into developed markets.
The Abu Dhabi Investment Authority also invested $3.32 billion in emerging markets, compared to $1.58 billion in developed markets.
As for Mubadala Investment, the strategic investment arm of Abu Dhabi, whose managed assets amounted to 1.4 trillion dirhams ($385 billion) at the end of last year, it invested more than $5.6 billion in developed markets, compared to only $330 million in emerging markets.
Al-Emad followed the same approach, directing $1.42 billion to developed markets, compared to $1.15 billion to emerging markets.
As for the Qatar Investment Authority, it invested $3.39 billion in developed markets during the same period, while its investments in emerging markets amounted to only about $60 million, according to the latest Global SWF data.
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