| Petrodollars: Russia puts them in treasuries, the Gulf still likes equities |
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| 04/02/2007 | |
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The tripling of crude oil prices from $20 a barrel at the start of 2002 to around $60 per barrel at year end 2006 is providing an important source of capital for global financial assets, with 66% of identifiable purchases making their way into short-term US securities, mostly Treasuries and agencies. Of the leading oil exporters, the Bank of Russia Reserves & Stabilisation Fund has been a particularly important buyer of US Treasuries, while the Kuwait Investment Authority, the Abu Dhabi Investment Authority and the Qatar Investment Authority have channelled more of their petrodollar funds into equities, reflecting their greater propensity for risk. The findings, published in a new report by PIMCO, are based on data from the US Treasury International Capital (TIC) system, which reports purchases of US securities by foreigners, the Bank of International Settlements (BIS) national banking statistics and Bloomberg's database on Mergers & Acquisitions. In a departure from the past, oil exporters are now saving the windfall from the surge in energy prices, making them the largest single source of global savings, surpassing Asian governments and on track to add half a trillion dollars in assets in 2006 alone. According to the RGE Global Reserve Watch, the world's central banks added $215bn to their reserves in the fourth quarter alone, driven by "strong accumulation of oil exporters." RGE, which tracks 20 countries, saw the largest increases in Russia's reserves ($35bn), followed by Saudi Arabia ($16bn). Meanwhile, reserve growth in 2006 reached $890bn, the highest ever. Most of the surpluses are highly concentrated among Russia, Saudi Arabia and Norway, representing 60% of the total. IMF and PIMCO data show that as of mid-2006, the Government Pension Fund of Norway had accumulated $170bn, Saudi Arabia's SAMA & Government Institutions $250bn, the Bank of Russia Reserves & Oil Stabilisation Fund, $260bn, and the Abu Dhabi Investment Authority (UAE), $250-500bn. But where are these oil funds being invested? Petrodollars, where to? Considering just the identifiable purchases of all major oil exporters, PIMCO estimates 46% has been parked in bank deposits, 20% in short-term US agencies and Treasuries, 14% in long-term US agencies, 6% in US corporate debt, 6% in M&A activity, 6% in equities and 3% in long-term Treasuries. Specifically, Russia has channelled most of its funds into bank deposits (57%), with the balance in US agencies and Treasuries and 1% in M&A activity. While Russia does not have identifiable purchases of equities, the Middle East OPEC exporters invested 12% in the sector and another 6% in corporate debt. "Middle Eastern countries have much more diversified asset preferences than other producers like Russia, where the central bank is the primary recipient of oil savings," according to PIMCO. In other findings: the data suggest Russian diversification out of US dollar assets starting in the second half of 2006, when net purchases of US assets dropped almost to zero. "The result of these new savings flows is that the total asset stocks under management by oil producers have increased dramatically. Information on these asset stocks is scarce, since many oil producers do not publish information on the sizes of their various funds. However, we estimate that the sovereign assets of oil producers totalled approximately $1.50-$1.86 trillion as of mid 2006. Union Bank of Switzerland estimates that global sovereign assets are approximately $6.5-7 trillion, which would make oil producer assets about 25% of the total. Clearly oil exporters have become key players in the global financial system." VB |
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