Six Persian Gulf states now have almost $1,600bn in foreign assets, dwarfing even China’s mammoth $1,100bn of foreign reserves, according to a new report from the Institute of International Finance.
The IIF report attempted to assess how the countries of the Gulf Co-operation Council had deployed their “oil windfall” in recent years. But it noted an “extraordinary deficiency” of information on the capital flows and foreign asset holdings of the GCC’s members, namely Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE. As well as traditional dollar investments, the IIF said evidence also suggested the six countries had “a strong interest in investments in emerging markets, particularly in the Middle East region and east Asia.”
The UAE, Saudi Arabia and Kuwait account for the bulk of the GCC’s $1,550bn of foreign asset holdings, according to the IIF. The overall holdings represented 225 per cent of the GCC’s gross domestic product while China’s foreign reserves represented 42 per cent of GDP. More generally, the IIF said that private capital flows to emerging markets were on track to match last year’s record of more than $550bn, a sign of a generally positive economic environment.
But Josef Ackermann, chairman of the IIF’s board of directors and of Deutsche Bank’s management board, said there were vulnerabilities in the economic outlook.
“There are risks and uncertainties and it is especially important at this time that borrowers and investors alike pursue prudent risk management,” he said.
William Rhodes, senior vice chairman of the IIF and of Citigroup, added: “Due to high levels of liquidity and the chasing of yield, we are seeing a lack of differentiation in the pricing of various financial assets in global markets today. The time has assuredly come when investors need to differentiate much more carefully between various types of risks, and to price risks according to fundamentals.”
Mr Ackermann said the scale of the private sector’s investment in emerging markets meant it had a major role to play in crisis prevention.
