SWFs

Isn’t it a bit late for Ben Bernanke to suggest a preventative measure for the financial crisis? The Fed chair has recommended state-level sovereign wealth funds:

Building a rainy-day fund during good times may not be politically popular, but it can pay off during the bad times 

Trillion-dollar mineral deposits apparently found in Afghanistan have the potential to make the country and its citizens comfortable for years to come – but only if wealth generated from the find is handled equitably. Without care, the ‘resource curse’ could trigger conflict, and make most Afghans worse off than they are now.

Ashby Monk suggests creating a sovereign wealth fund straight away, to hold and manage the revenue for future generations. 

Oh dear. China’s ‘big four’ commercial banks lent money so willingly in 2009 that their capital adequacy ratios are barely above the statutory minimum of 11 per cent. The Bank of China, for instance, is apparently at 11.14 per cent.

Why should this affect China’s – and, by some accounts, the world’s – largest sovereign wealth fund? Because its domestic arm is the majority shareholder of the ‘big four’*. So China Investment Corporation has asked for a cash injection from the State Council, the country’s cabinet.

That cash would head for Central Huijin Investment Ltd., the domestically orientated 

Perhaps for old times’ sake, the inaugural meeting of a new uber-network took place at the Bundesbank in Frankfurt. The next one is being held at the central bank of Kuala Lumpur, and subsequent meetings are planned for Asia, the Middle East and Africa.

The network consists of central banks, sovereign wealth funds, regulators, asset managers and retail banks. Membership is by invitation, and discussions are under the Chatham House rule. Reasons for meeting range from tips on investment strategies to regulation proposals. But one unnamed attendee observed “it ma[de] sense” for buyers and sellers of government bonds to get together. From ft.com:

Central banks and debt management offices are on a charm offensive

 

Please welcome Guoxin Asset Management to the world’s growing family of sovereign wealth funds. But don’t expect to read much more about it: GAM looks set to be exclusively domestic.

China’s state council has apparently approved the fund’s creation, says the Oxford SWF project. It will be owned by China’s SASAC and its purpose is to consolidate 128 state-owned enterprises to about 80 – oh, and make them profitable. The new fund is unlikely to have either mandate or budget to make international investments. 

Is Norway calling the bottom of global property markets? Its central bank has given approval for its oil-funded sovereign wealth fund to invest up to 5 per cent ($22bn) in the asset class.  “Investments will principally be made in well-developed markets and within traditional types of real estate,” Finance Minister Sigbjoern Johnsen told Reuters. “We must be prepared for real estate prices to fluctuate a good deal.”

Norway has form calling turning points. Last year the fund was allowed to increase its proportion of equity holdings to 60 per cent. During that year, major indices rose about 50 per cent. The fund made 13.5 per cent in Q3 alone. I wonder if they’re planning to reduce the equity proportion now (Bloomberg).

Commodities inflation could rise rapidly if China follows the advice of one of its central bank officials, who recommends spending forex reserves on strategic resources such as oil. The move would further China’s diversification from the dollar.

Many emerging economies, such as Indonesia, list commodity inflation as a principal risk to continued economic recovery. 

Russia has lowered rates and Vietnam has raised them. This is the ninth cut since April for Moscow – they are trying to slow the appreciation of the rouble and revive lending. Hanoi has devalued the dong by more than five per cent and raised rates by a full percentage point in an effort to curb inflation. The Vietnamese move is not the start of the mooted currency war.

Rising bank failures pushed the FDIC rescue fund into debt as of September 30, 2009. 

This might seem like a currency special edition. The dollar fell after China hinted at renminbi appreciation. The People’s Bank of China said foreign exchange policy would take into account “capital flows and major currency movements”, a pointed reference to US dollar weakness and the large speculative inflows of capital that China is receiving. Those speculative inflows are a growing concern for many emerging markets, whose currencies are rising quickly: Taiwan, Russia, Brazil, Thailand and Chile are all planning how best to slow the influx of capital.

Dollar reserves have been going out of fashion over the past few months, and now two IMF economists have called for diversification away from the greenback. This will make Geithner’s (widely mocked) ‘commitment’ to a strong dollar even harder to achieve. 

Banks face higher refinancing costs as $7,000bn of short-term debt is due to mature in the next three years. The IEA is accused of overstating energy reserves and the chief economist of the World Bank says China should not be forced to allow appreciation of the renminbi