Oil-dependent Saudi, Norway sovereign funds selling European shares

LONDON — The three biggest sovereign wealth funds (SWFs) of oil-producing countries have been selling European equity holdings since May, a study showed this week, another sign of petrodollars being withdrawn from world markets.

Asian funds have meanwhile continued to add European equities, according to the data from Nasdaq Advisory Services, which provides analysis on shareholder and investor activity.

Since May, the Saudi Arabian Monetary Authority has sold $1.2 billion worth of equities across Nasdaq’s European client base. That accounts for 13 per cent of its $9.2 billion holdings in the European companies tracked by Nasdaq.

Norway’s Norges Bank Investment Management has sold $1.1 billion, around 2 per cent of the $57.5 billion market value of its holdings, while the Abu Dhabi Investment Authority has cut some $300 million worth of shares from its $3.6 billion holding.

“Over 2015, the three largest oil-dependent SWFs have all been reducing their equity holdings in the region, with this trend accelerating over the second quarter and into the third quarter of the year,” indicated Alexander Free, an analyst with Nasdaq’s Advisory Services.

The data is based on a sample of 159 European companies, with a market value of $1.87 trillion, Nasdaq says. They range from retail and telecoms shares to financials and utilities.

Falling oil prices, Brent crude is over 60 per cent cheaper since summer 2014, are pressuring oil producers to rein in spending or liquidate assets.

Recycling

Energy-exporting countries pulled money out of world markets last year for the first time in almost two decades, halting the “recycling” of oil windfalls, BNP Paribas has said.

This year exporters will use up the $750 billion earned from oil and also dip into central bank and sovereign warchests for an additional $100 billion, according to a JPMorgan (JPM) study.

Bond purchases by sovereign and foreign exchange reserve managers will decline by $90 billion between 2014 and 2015 while equity buying will fall $200 billion, JPM indicated in a note.

Saudi Arabia’s central bank, which serves as the wealth fund of the world’s top oil exporter, has been drawing down its reserves since late 2014. Its net foreign assets fell by $6.6 billion in August as investments were liquidated to plug a budget gap.

“It’s a pretty dire situation,” Free said.

Norway is expected to make a net withdrawal from its sovereign wealth fund this year for the first time since the SWF was set up, to help pay for tax cuts designed to stimulate the economy. Its $830 billion fund is the world’s largest, holding about 1.3 per cent of global stocks.

Their withdrawal from markets may be partly offset by energy importers, however, with JPM estimating that oil savings would lead to “a positive flow change” of $90 billion for bonds and $30 billion for equities.

The Nasdaq report showed that the three biggest non-commodity-driven sovereign funds have been net buyers of European equities, particularly China’s SAFE, which holds about $35.6 billion worth of the Nasdaq sample.

SAFE started buying heavily in Europe from the first quarter of 2015, acquiring $2.1 billion of the shares tracked by Nasdaq. 

Singapore’s Temasek and GIC have also acquired a combined $1.1 billion of European equities so far this year, Free indicated.

He suggested their interest may stem from a search for better valuations as US equity prices surged to pre-crisis levels, while the European Central Bank’s money-printing programme also lent support.