Three of the world’s largest sovereign wealth funds (SWFs) have sold billions of dollars in European equities this year as pressure on the oil price has forced them to reconsider their investment strategies.
Data from Nasdaq Advisory Services showed that the Norway Government Pension Fund—Global, the Saudi Arabian Monetary Agency, and the Abu Dhabi Investment Authority (ADIA) withdrew a combined $2.6 billion from European markets between May and September 2015.
“The buying activity of oil-rich SWFs across firms may well be something of the past.”—Alexander Free, NasdaqIn a report accompanying the data, Nasdaq Analyst Alexander Free said the recent sales could indicate a “change in momentum” among those sovereign wealth funds dependent on sales of oil for their revenues.
The price of oil collapsed in the second half of 2014, meaning the current price of roughly $50 a barrel is less than half its level 18 months ago, according to Bloomberg.
Øystein Olsen, CEO of Norges Bank Investment Management, recently warned that the rate at which the Norwegian government was spending its oil revenue would soon exceed the amount of money it was raising from sales. Nasdaq’s Free said this scenario would “put further selling pressure” on the SWF. It has already sold $1.1 billion of European equities between May and September, and sold more than $500 million in the two previous four-month periods.
Meanwhile, the government of Saudi Arabia issued its first sovereign bond since 2007 in July this year in an effort to raise $4 billion, Free said. In addition, the International Monetary Fund recently warned that the country’s fiscal deficit was increasing, which could increase withdrawals from the Saudi Arabian Monetary Agency.
ADIA has acknowledged that it too may have to withdraw from its wealth fund, Free added.
“With the selling from oil dependent sovereign wealth funds showing no signs of abating, and with these funds suffering from more than solely the weak oil price, the buying activity of oil-rich SWFs across firms may well be something of the past,” Free said.
However, Nasdaq’s data from other SWFs—particularly those based in the Far East—indicated that these investors had been buying equities in Europe.
“There is an opportunity for emerging markets SWFs to start plugging the gap left by the oil dependent sovereign investors,” Free said.
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