Investment funds in Kuwait, Qatar, Dubai and Abu Dhabi are understood to be changing their investment strategies after losing billions of dollars buying shares in Western companies. Several Gulf-based banks are being propped up with state investment. Local stock markets have collapsed and some funds are shifting their assets into local shares in an attempt to inject confidence.
The Kuwait Investment Authority (KIA) has shifted $4 billion (£2.6 billion) from Western markets into its own bourse and the Qatar Investment Authority has begun a bailout of local banks. Dubai International Capital (DIC) is concentrating on emerging markets and rumours have spread that the Abu Dhabi Investment Authority, a $700 billion oil fund, is retreating to local markets.
Sovereign wealth funds are among the few sources of liquid capital available worldwide and many companies have sought cash injections from the Middle East. However, investments in banks such as Citigroup and Merrill Lynch have cost the funds dearly and regional bankers are said to feel that they were lured into investing before the full extent of the crisis was known. The KIA, which has assets estimated at $250 billion, said two months ago that it had lost $270 million on a $3 billion investment in Citigroup, which was made at the beginning of this year. Citigroup's share price has fallen by two thirds since that announcement and now the bank is being supported by the US Government.
The ruling families of Qatar and Abu Dhabi agreed last month to inject £6 billion into Barclays, giving the Gulf-based investors a 30 per cent stake. However, this sort of bailout may become more difficult as funds are diverted to the Middle East.
A refocusing by the funds on local and emerging markets is worrying for Western politicians. Gordon Brown visited Saudi Arabia, Qatar and Abu Dhabi this month to encourage sovereign funds to invest in British businesses and also support international institutions such as the International Monetary Fund and World Bank in an attempt to limit the economic downturn.
Sameer al-Ansari, chief executive of DIC, said yesterday that he saw opportunities in Western markets in the next couple of years, but admitted he was unlikely to take any big bets soon.
“Timing is going to be absolutely crucial, but I am still not comfortable with the kind of big bets we have taken traditionally,” he said. “Given the crisis that we are in, the governments in the region have to use their money wisely. That means investing in infrastructure and long-term projects good for the region and also to look outside [the region] to diversify, acquire, to buy strategic assets.”
DIC, which owns the Travelodge chain of hotels, is thought to have suffered a fall in the value of its assets from a peak of $13 billion to between $10 billion and $12 billion.
DIC is the investment business of Dubai Holdings, a government-owned conglomerate that includes property companies, ports, banks and hotels. It has large stakes in Sony, EADS, HSBC and Daimler. The fund is said to have effectively ended private equity investments and has ruled out making another approach for Liverpool Football Club, having lost out to the American investors Tom Hicks and George Gillett last year.
Speaking at the Dubai International Financial Centre conference yesterday, Mr al-Ansari said that falling stock prices in the West could provide some Gulf countries with an opportunity to develop their own economies. Investing in technology and manufacturing companies would allow these states to encourage operations to be moved to the Gulf, which would provide jobs for the region's rapidly growing population. “To become the largest shareholders in the ten largest companies in the world would cost about $50 billion at present and that's actually not a lot of money,” he said. “Imagine the power and influence this region would have if we were the shareholders in the ten, twenty, thirty largest companies in the world.”
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