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21 April 2024

Gulf SWFs 'must target credible financial assets'

Steen Jakobsen (SUPPLIED)

By Shashank Shekhar

Gulf-based sovereign wealth funds, intending to invest in the US and European assets, should direct their investments to credible financial assets, said a senior bank official.

Steen Jakobsen, the Chief Investment Officer (CIO) of Saxo Bank, has said: "I do not mean to say that the GCC countries should be buying companies like Merrill Lynch. When we take the debt writedowns aside, whatever is left has a unique investment opportunity," he said.

Jakobsen went ahead to term an aid to bailout the West as a "responsibility" of the GCC countries.

"The prize in the end is that they could take decent returns. And this is what a global economy is all about," he said.

A recent estimate puts the total amount of writedowns in the West at $ 1 trillion (Dh3.67trn). Jakobsen said net worth of global economy was $50trn three months ago – $25trn, or 50 per cent, of which is lost. However, the debt remains high leading to a soaring debt to equity ratio. Most of western banks and financial institutions have suffered in a cascading crisis in the West that began six months ago. The worst sufferers have been investment banks and those dealing in mortgages.

"People have been greedy and they have taken several wrong decisions," he said.

Making another suggestion to the GCC countries, Jakobsen stressed that they need to develop their capital markets. "Even though the capital markets have been criticised a lot, they are a solution to the crisis. The Gulf states may have capital but they need to have a mixture of foreign capital and local capital," he said. He advised the Gulf policymakers to walk out of protectionism.

Jakobsen who expects two to three per cent in returns from all investment profiles in the next two to three years said commodities, equities like pharmaceuticals and water utilities and corporate credits would provide ideal space for investment in 2009.

"There are mining companies whose value of mineral reserves stand at thrice the value of the company itself. Then there are corporate credits trading at 50 cents a dollar where there is just 50 per cent of payment left."

The bank CIO expects a global economic recovery in 2011. "It could extend on to 2013 if proper steps are not taken. As of now I am not satisfied with the policymakers. The solutions need to be international," he said.

Steen termed all the steps taken by the Western governments so far as inappropriate and said that the market factors should be allowed to heal the slowing global economy.

"What is happening is the right opposite. The US is focusing on buying American and in promoting the domestic economy. The economic team that US President Barack Obama has chosen comprises of people who have been a part of the problem. If this continues, we will head towards a deeper problem," he said.

The last hope, that of China spurring demand and thus invigorating the world economy in 2009 is now lost, Jakobsen said. "China is going to disappoint. I see it growing at two to three per cent this year."