The Global Corner: Follow the Money

March, 2012

By Jerry Smith

If one is not convinced already that the flow of oil is also the flow of money, then a look at the various global financial repositories will do the trick.  Of course, the primary exception is the China and Singapore phenomena, which is known to us all at this point, at least China. There is more than one way to measure or quantity the shifting of money to a hierarchy of nations’ holding the greatest amount of sovereign assets or exchangeable currencies. For this article, we will focus on those nations and two of their principal cauldrons of wealth: Sovereign Wealth Funds and Foreign Holders of Treasury Securities.

Sovereign Wealth Funds (SWFs) are the accumulations of wealth held by nations which then typically invest in diversified assets and securities around the world. Here are the top ten SWFs based on assets under management (US Billions). The investor classes and asset classifications show that the funds are usually invested in this descending order: bank assets, stock market capitalization, bonds, private debt securities, pension funds, mutual funds, public debt securities, insurance companies and gold.

UAE (4874)                   Russia (149)
China (1403)*               Qatar (85)
Norway (560)                Australia (73)
Saudi Arabia (533)        Libya (65)
Singapore (404)**         Algeria (57)

Some might find it interesting that Alaska and Texas have state-held investment funds equaling 40Bil USD and 25Bil USD, respectively.

SWFs, though in existence since the 1950s, have surged since the rise of higher oil prices. In fact, the total SWFs equaled only 500Bil USD in 1990, now they exceed 12Tril USD. Predictably, these funds will continue to grow and become a major factor in a nation’s economic security. For example, Saudi Arabia during times of oil price fluctuations has effectively pumped portions of their SWFs into their economy to add political stability.           

Foreign Holders of Treasury Securities is the term used for nations holding debt securities offered by nations, such as the U.S. Treasury, in the form of treasury bills, bonds and notes. The foreign holders may retain the securities of many nations, usually in proportion to their views and measurements of safety.

Hence, more nations hold U.S. treasury securities than any other because of the stability and safety that the U.S. economy seems to offer. One would surmise, correctly, that this type investment is more fluid and active by nature than SWFs.

The following list represents the holdings of U.S. securities (in US Billions) only. Note that this listing combines two categories, Oil Exporters and Caribbean Banks, which have been substituted for nations.

China (1132)                  Caribbean Banks (185)
Japan (1038)                  Taiwan (149)
UK (429)                        Switzerland (113)
Oil Exporters (232)        Hong Kong (105)
Brazil (206)                    Russia (90)

Recently, China shifted its amount of holdings in U.S. securities and purchased Australian securities. However, the percentage of China’s holdings of U.S. securities remains the highest in its portfolio.

Some of this data is telling about the world economy and economic power shifts. When it makes the news that XYZ country bought a stake in ABC company in the U.S., it is most likely coming from one of the SWFs, e.g., when in 2007 the Abu Dhabi SWF bought 4.9% of Citi Bank stock. On the other hand, who would have thought Norway was #3 in Sovereign Wealth Funds?

*SAFE Investment Company, China Investment Corp, National Social Security Fund
**Government of Singapore Investment Corp, Temasek Holdings

Jerry Smith is an export trade consultant and Vice-President of International Business Development, South Carolina Manufacturers Extension Partnership. For more information concerning this article, contact: [email protected]