The Institute of International Finance (IIF) expects that the Gulf Cooperation Council (GCC) countries’ gross foreign assets will hit an impressive $4.4 trillion by 2024. This growth is due to robust oil exports and current account surpluses reaching an estimated $146 billion.
The IIF’s report highlights that nearly two-thirds of these assets are under the stewardship of sovereign wealth funds. They boast diversified portfolios comprising public equities and fixed-income securities.
Net assets position
Contrary to the gross foreign assets, the total foreign liabilities of the GCC region are projected at a comparatively modest $1 trillion. This leads to a substantial net foreign assets position of $3.4 trillion, as outlined by the IIF. Garbis Iradian, chief economist, MENA, at the IIF, emphasizes that this remarkable accumulation is indicative of the GCC’s robust financial standing on the global stage.
Asset allocation
Breaking down the investments, the IIF estimates reveal a well-diversified portfolio across asset classes. Approximately 35 percent of GCC investments are in equities and 22 percent in bank deposits. Moreover, 17 percent are in foreign direct investment abroad, 7 percent in U.S, Treasuries, and 10 percent in bonds. The remaining 9 percent is in less liquid investments, such as non-U.S. bonds, mergers and acquisitions, and hedge funds.
Additionally, the geographical distribution of these investments demonstrates a strong tilt towards North America and Europe, constituting 65 percent of the total. Asia Pacific follows at 20 percent while other MENA countries at 10 percent. The remaining 5 percent are distributed between Sub-Saharan Africa and Latin America.
Saudi Arabia’s Vision 2030
A noteworthy trend highlighted in the report is the shift in investment patterns. GCC sovereign wealth funds are shifting towards global equities and foreign direct investments (FDI). Moreover, Vision 2030 has been a catalyst for this transformation. The Public Investment Fund (PIF) has significantly increased investments in riskier assets. Hence, foreign equities and FDI grew from 20 percent to over 40 percent of total foreign assets by Q2 2023.
Furthermore, Saudi Arabia’s move away from safer investment assets, including a gradual reduction in foreign reserve assets, is strategically driven by three key goals. First, the pursuit of higher returns aligns with PIF’s ambition to manage $2 trillion in assets by 2030. Second, it facilitates diversification away from oil, acting as a hedge against oil price fluctuations. Third, the shift towards riskier investments supports the funding of ambitious projects outlined in Vision 2030.
Read: Capital Economics expects UAE to achieve significant budget surplus in 2024
Dollar dependence
The report also sheds light on evolving trends in GCC countries’ currency dynamics. While trade continues to be predominantly conducted in U.S. dollars, there is a gradual shift towards bilateral trade agreements that allow settlements in other currencies. That is especially true with China and India. However, the IIF anticipates this shift to be limited, considering all GCC currencies are pegged to the dollar, providing stability in the region.
The IIF report paints a comprehensive picture of the GCC’s financial landscape, showcasing the impressive growth in foreign assets and the strategic shifts in investment patterns. As the GCC economies continue to evolve, these insights provide a valuable glimpse into the region’s financial future.
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