The Gulf Investor in 2008

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The interminably quotable Winston Churchill once said, "History will be kind to me, for I intend to write it.

Of those writing the history for 2007, few will produce more gleaming accounts than the ones penned from Middle East boardrooms.

The successes, and failures, of last year provide the clues as to what will dominate the 2008 investment season - and undoubtedly, the most important phenomenon has been the emergence of Sovereign Wealth Funds (SWFs).

According to Chris Mayer, the editor of the Capital & Crisis investment newsletter and Mayer's Special Situations research service, the sheer magnitude of these waking giants renders them impossible to ignore when forecasting investment trends for the coming year.

"This year, the Gulf states passed China in terms of their foreign asset ownership. The six countries now have almost US$1.6 trillion in foreign assets, topping even China's US$1.1 trillion of foreign reserves.

"There are growing petrodollar stockpiles in the GCC," Mayer continues. "Along with China and other countries, the GCC is increasingly setting aside more and more of these funds to invest abroad - in stocks, real estate and private businesses. What they buy could have a huge impact on market prices... and your investments.

In fact, as we go to print with this issue, conflicting details are emerging about Saudi Arabia's intention to join the SWF party. The world's largest oil producer is rumored to have announced its intention to establish the world's biggest investment fund, estimated to be in the vicinity of US$900bn.

But these cashed-up government investment arms are not interesting merely because of their staggering size; the path of their capital may also provide some indication as to the direction of global liquidity flows for the year to come.

Poised to Buy Up Big in ‘08

The Abu Dhabi Investment Authority's (ADIA) signaled its intent with its giant bite of the Citibank pie in November.

In a deal that took only a few days to cobble together, ADIA sucked up a mammoth 4.9% of America's largest bank for US$7.5bn. The world's largest funds - ADIA (US$625bn), Norway (US$322bn), Singapore (US$215bn), Kuwait (US$213bn), China (US$200bn), Russia (US$127bn) - are clamouring to secure the largest war chest of foreign assets they can.

Eric Fry, editorial and investment director of Agora Financial, a US-based financial think tank, told Arabian Business oil-producing nations are being forced to be aggressive just to make decent returns.

"Vast wealth ­- like raw beauty - is a good problem to have, but owning hundreds of billions of US dollars may be harder than it looks. Many SWFs may be growing tired of buying T-bills that pay 4% per year in a currency that is losing value at 9% per year.

"Now that the dollar's value has become a bit shaky and unreliable," argues Eric, "the SWFs are moving into investment realms that they had previously shunned. Increasingly, the SWFs are choosing to become equity-holders in Western companies, rather than mere debt-holders.

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