ME sovereign funds prefer Asia and Africa

Manama: Sovereign wealth funds in the Middle East prefer to invest more in Africa and emerging Asia, according to a recent report.

Middle East allocations to emerging Asia are seen increasing from 1.5 per cent in 2014 to 2.3pc in 2015, and in Africa from 1.0pc to 2.6pc. Manufacturing capability, political stability, and the quality of infrastructure are cited as key factors for this change, according to the annual Invesco Global Sovereign Asset Management Study.

This year’s study reveals that despite continued market volatility and the sustained low oil price, Middle East sovereign investor confidence is stable and they continue to pursue long-term investment goals through strategic asset allocation. 

This year there is a strong preference for the US above other geographical regions and an increased appetite for real estate investment to drive allocations towards alternatives.

The BRIC markets - Brazil, Russia, and China - have all lost their attractiveness to Middle East sovereign investors amid weaker performance, with only India becoming increasingly attractive. In comparison to the last few years, sovereign investors globally are now less willing to overlook political and regulatory concerns in these regions to hit target allocations. 

The report claims to be an in-depth feature on the complex investment behaviour of sovereign wealth funds and central banks, conducted face-to-face amongst 77 individual sovereign investors and reserve managers across the globe and representing 66pc of sovereign assets and 25pc of foreign reserves - totalling US$8.96 trillion of assets.

While the challenging macro-economic environment, driven by the sustained low oil price, has impacted on global sovereign investment performance, with average annual portfolio returns having fallen, Middle East sovereign investors remain better prepared in terms of investment capability and governance, says the report.

While allocations to infrastructure and private equity have increased over the last three years, total allocations remain low. 

From 2013 to 2015, Middle East sovereign investors’ average total portfolio assets to infrastructure increased from 0.3pc to 2.5pc, whilst private equity rose from 5.2pc to 5.5pc of the Middle East average sovereign portfolio.