The easiest way to pocket gains in emerging markets is to follow the money.
This may sound odd coming from a bunch of contrarians who usually bet against Wall Street. But we’re not talking about Wall Street this time. We’re talking about the REAL BIG MONEY…Sovereign Wealth Funds.
SWFs are usually owned by the central bank of a government that has trillions in surplus. SWFs have grown in power most recently with the commodity boom. Surging prices in oil, natural gas and precious metals have given SWFs in the Persian Gulf and Asia in particular increased clout in how they want to shape the world.
Now we find that SWFs in the Persian Gulf are moving into oil-rich Southest Asia — tipping off investors to stable, long-term growth opportunities.
At the end of last year, the Qatari Investment Authority (QIA) signed a deal with the Indonesian government to establish a $1-billion fund aimed at improving the country’s infrastructure. Once a government starts investing in infrastructure, you know that the economy is set for growth.
New infrastructure means more reliable energy for manufacturing, better roads for transporting products to market (usually exports), modern airports and harbors and some other amenities that we take for granted…such as running water.
Indonesia gives QIA a toehold in Asia. In 2006, Qatar’s prime minister and QIA head, Sheikh Hamad Bin Jassim Bin Jabr Al-Thani, was reported as saying he wanted to take stakes at banks in China, Korea and Vietnam — some of the fastest growing emerging markets on the planet.
Within 18 months, QIA had indeed reached an agreement with Vietnam’s State Capital Investment Corp. for investments in infrastructure, energy and real estate.
Overall, Persian Gulf SWFs are rapidly gaining ground in Asia.
In January, at the ribbon cutting of Kuala Lumpur’s biggest shopping mall, a group of demure guests stood on the sidelines. They were representatives of QIA As it turned out, QIA owned 49% of the mall’s builder.
Kuwait Investment Authority has shifted its investment targets strategy from the sluggish economies of the industrialized West to fast-growing emerging economies such as China, India, South Korea, and Turkey.
The head of the Kuwait Investment Authority, Bader M. Al Sa’ad, told BusinessWeek in January that he wants to invest more in China and Brazil and other hot emerging markets — and less in Britain and France.
(What a coincidence that Brazil’s state-owned Petrobras oil company recently found a new field with the potential to produce at least 700 million barrels of crude — followed by deepwater field estimated to hold the equivalent of five- to eight-billion barrels of crude.)
The Middle East Research Institute recently reported that…
– Dubai International Capital and DIFC Investments are working to extend their reach into Pakistan, India and South Korea.
– The Dubai World group of companies, plans to increase the 5% of its assets it has invested in Asia to 30% within five years.
- - Dubai will help launch the Dubai Mercantile Exchange, a joint venture with Nymex to create a futures market for Mideast crude oil exported to Asia.
- - Dubai Ports World, in its attempt to double its capacity in 10 years, is developing terminals in China, India, Vietnam and Pakistan.
In short, the Persian Gulf SWFs see Asia as a strategic investment to help control the natural resources, infrastructures and assets of regions becoming increasingly important to a new world order in the global economy.
So how can an individual investor safely cash in the Persian Gulf SWFs?
One place to find that answer is our Taipan Emerging Market Index. (We post the results every Friday).
A consistent winner in our index has been the SSE Composite Index (Shanghai: 000001.SS). Right now it’s near 12-month low. We believe that it’s suffered, along with other emerging market indices, more from inflation than poor fundamentals.
It may be too soon to really see if the current uptrend will continue, but the SSE merits are attention. Certainly, the REALLY BIG MONEY is sinking billions into the region, and this could your chance to get in on the cheap.
–Irwin Greenstein
September 4th, 2008 at 5:20 pm
[...] The easiest way to pocket gains in emerging markets is to follow the money, says Irwin Greenstein in Taipan’s Emerging Market blog. [...]