World’s biggest sovereign fund worried about trade wars

The Government Pension Fund Global manages the country’s oil revenues in order to finance Norway’s generous welfare state when its oil and gas wells run dry. (AFP)
Updated 21 August 2018
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World’s biggest sovereign fund worried about trade wars

  • The fund posted a positive return of 1.8 percent, or 167 billion kroner ($19.8 billion), in the second quarter
  • Markets are worried about a trade dispute between the United States and China

OSLO: The managers of Norway’s sovereign wealth fund, the world’s biggest, expressed concern Tuesday about global trade tensions, which could heavily impact its value.
The fund posted a positive return of 1.8 percent, or 167 billion kroner ($19.8 billion), in the second quarter, helping erase a loss of 171 billion kroner in January-March that was attributed to a volatile stock market.
The Government Pension Fund Global, which saw its total value swell to 8.33 trillion kroner by the end of June, manages the country’s oil revenues in order to finance Norway’s generous welfare state when its oil and gas wells run dry.
But Norway’s central bank, which runs the fund, said geopolitical and trade tensions presented a risk.
“It’s fair to say that increased trade barriers or even trade wars will not be beneficial for the fund as a long-term global investor,” Trond Grande, the deputy chief of Norges Bank Investment Management, told reporters.
Markets are worried about a trade dispute between the United States and China. Accusing Beijing of unfair competition, the US administration is considering slapping a new round of levies worth $200 billion on Chinese goods.
Talks between the two slated for Wednesday and Thursday aimed at resolving the dispute have however eased concerns somewhat.
Following US-Turkey tensions that sent the Turkish lira and the Istanbul stock market tumbling, the Norwegian fund said its assets there were worth less than the 23 billion kroner they were at the beginning of the year.
“We’ve seen the market rise for a long time, that there are different political and geopolitical events in the world that can affect the market, and we have to be prepared for the fact that (the value of) the fund can go down a lot,” Grande concluded.
The fund’s strong second quarter was attributed primarily to its share portfolio, which accounts for 66.8 percent of its investments and which rose by 2.7 percent.
Real estate holdings, which account for 2.6 percent of its holdings, rose by 1.9 percent, while bond investments, which represent 30.6 percent, remained flat.
Faced with falling oil revenues in recent years, the Norwegian government has been tapping the fund to finance public spending since 2015. But with oil prices recovering, the fund registered its first inflow in three years in June.


Dubai real estate market recovery to be seen as of 2022: S&P

Updated 20 February 2019
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Dubai real estate market recovery to be seen as of 2022: S&P

  • The outlook on property was part of a challenging assessment of the credit-worthiness of the emirate
  • S&P was generally comfortable with the credit ratings of the emirate’s banking system

DUBAI: S&P Global, the ratings agency, painted a grim picture for the real estate sector in Dubai, with a meaningful recovery in property prices expected only after 2022.
At a presentation to journalists in the Dubai International Financial Center, S&P analyst Sapna Jagtiani said that under the firm’s “base case scenario,” the Dubai real estate market would fall by between 5 and 10 percent this year, roughly the same as the fall in 2018, which would bring property prices to the levels seen at the bottom of the last cycle in 2010, in the aftermath of the global financial crisis.
“On the real estate side we continue to have a very grim view of the market. While we expect prices to broadly stabilize in 2020, we don’t see a meaningful recovery in 2021. Relative to the previous recovery cycle, we believe it will take longer time for prices to display a meaningful recovery,” she said.
S&P’s verdict adds to several recent pessimistic assessments of the Dubai real estate market. Jagtiani said that conditions in the other big UAE property market, in Abu Dhabi, were not as negative, because “Abu Dhabi never did ramp up as much in 2014 and 2015 as Dubai.” S&P does not rate developers in the capital.
She added that a “stress scenario” could arise if government and royal family related developers — such as Emaar Properties, Meraas, Dubai Properties and Nakheel — which have attractive land banks and economies of scale, continue to launch new developments.
“In such a scenario, we think residential real estate prices could decline by 10-15 percent in 2019 and a further 5-10 percent in 2020. In this case, we expect no upside for Dubai residential real estate prices in 2021, as we expect it will take a while for the market to absorb oversupply,” she said.
S&P recently downgraded Damac, one of the biggest Dubai-based developers, to BB- rating, on weak market prospects.
However, Jagtiani said that, despite the “significant oversupply” from existing projects, several factors should held stabilize the market: Few, if any, major product launches; improved affordability and “bargain hunting” by bulk buyers; and a resurgence of Asian, especially Chinese, investor interest in the market.
Jagtiani also said that government measures such as new ownership and visa regulations and reduction in government fees could help prevent prices falling more sharply, as well as “increased economic activity related to Dubai Expo 2020, which is expected to attract about 25 million visitors to the emirate.”
The outlook on property was part of a challenging assessment of the credit-worthiness of the emirate. “In our view, credit conditions deteriorated in Dubai in 2018, reducing the government’s ability to provide extraordinary financial support to its government related entities (GREs) if needed,” S&P said in a report. “The negative outlook on Dubai Electricity and Water
Authority (DEWA) partly reflects our concern that a real estate downturn beyond our base case could out increased pressure on government finances,” the report said.
It pointed out that about 70 percent of government revenues come from non-tax sources, including land transfer and mortgage registration fees, as well as charges for housing and municipality liabilities, as well as dividends from real estate developers it controls, like Emaar and Nakheel.
S&P was generally comfortable with the credit ratings of the emirate’s banking system, which has an estimated 20 percent exposure to real estate. “Banks in the UAE tend to generally display a good level of profitability and capitalization, giving them a good margin to absorb a moderate increase in risks,” the report said.