by Jules Evans | Mar 26, 2008 | Global system, Middle East and North Africa
Record commodities prices have given countries like China, Singapore, Russia, Kuwait, Abu Dhabi and UAE control over trillions of dollars, which they have stowed away in sovereign wealth funds (SWFs), that are now hovering over the global financial system like mighty hoovers, sucking up whatever assets cross their path.
The SWFs have, in the last 12 months, been on an almighty spending spree. Gulf SWFs, for example, spent an extraordinary $83 billion on 173 deals in 2007. That means SWFs are now, in the opinion of some experts, the main driver of merger & acquisition activity in the world.
Stephen Barrett, international chairman of corporate finance at KPMG, says: “With the right people in place – and experience of some major deals under their belts – the SWFs could rapidly assume the mantle of deal-making kingpins, relegating the private equity houses and corporates to second and third place.”
Perhaps with a view to getting ‘the right people in place’, many Asian and Gulf SWFs have been forging close links with leading Wall Street banks, both by getting their advice on major acquisitions, and by actually buying stakes in those banks.
Thus in the last 12 months, the Kuwait Investment Authority has invested $3 billion in Citigroup and $2 billion in Merrill Lynch; the Abu Dhabi Investment Authority has invested over $7 billion into Citigroup; the Mubadala Development Company from the UAE invested $1.3 billion into the Carlyle Group and another $1.2 billion into the hedge fund Och-Ziff Capital Management Group; the DIFC from UAE invested over $4 billion building up stakes in OMX and the LSE; while the Qatar Investment Authority has also spent billions of dollars building up stakes in Credit Suisse and, it is rumoured, Royal Bank of Scotland – and says it intends to spend a total of $15 billion on western financial stocks.
In other words, Gulf SWFs have taken a massive bet on the continued health of the western financial system. Whether these are good bets remains to be seen – so far, for example, Citigroup’s stock price is down 21% since Abu Dhabi invested $7.5 billion in November. The China Investment Corporation’s $5 billion investment in Morgan Stanley is down by a similar amount.
But the challenge for the SWFs is where to put all their money. They have, literally, an embarrassment of riches. And this could prove to be a historical low for western bank share prices, and a great buying opportunity for SWFs.
On the other hand, some analysts are wondering if SWFs could, themselves, replace Wall Street banks as the biggest deal-makers, the biggest global lenders, and the biggest hirers of financial talent. Banks like Merrill Lynch, Credit Suisse and Citigroup are already scrambling to set up big offices in the main Gulf and Asian countries, so as to offer their financial advice to the SWFs and other big emerging market investors.
So, rather than paying banks millions of dollars in advisory fees, why don’t the SWFs just hire the cream of Wall Street’s deal-makers and get them to work for them? Wouldn’t that be cheaper? But if they did poach bankers from Wall Street, wouldn’t that undermine their investment in the banks and funds where these deal-makers used to work?
Such are the confusing dilemmas presently facing SWFs. As one banker I spoke to said yesterday: ‘They don’t have a plan as such. They are making it up as they go along.’ SWFs have abruptly and unexpectedly found themselves at the driving wheel of the global financial system. Freaked out by this, they have handed the wheel to…Wall Street bankers, who are exactly the people who crashed the car last time!
by Alex Evans | Mar 25, 2008 | Influence and networks, South Asia
Avaaz’s current petition, calling on China to begin “meaningful dialogue” with the Dalai Lama, looks set to pass has now passed the one million signature mark some time later today, which will make making it comfortably the largest petition ever organised on the internet. Sign it here.
[Update: and they’ve also just won political video of the year on the 2007 YouTube video awards. Quite a week.]
Still, you have to wonder (again) at the breathtaking incompetence of the Chinese at public diplomacy. For heavens’ sake: the Dalai Lama has been calling for people not to boycott the Olympics; he’s arguing for autonomy rather than independence for Tibet; he called on rioters to halt, and maintain a nonviolent stance. As the Economist noted on Friday, opening talks would boost China’s image around the world. Instead, China “seems intent on using the Olympics to flaunt its control of Tibet, as the flame is paraded in Lhasa”.
‘Course, that same torch is coming through London a week on Sunday. Expect fireworks…
by Jules Evans | Mar 18, 2008 | Global system, Influence and networks
Back in September 2002, I wrote a cover story for Euromoney called ‘The End of Unfettered Capitalism’. I interviewed various wise sages of finance (Joseph Stiglitz, George Soros, er…Ann Pettifor) who opined to me of the end of neo-liberalism and the need for a new economic model.
Back then, in the aftermath of Enron and the bursting of the internet bubble, the financial press was full of soul-searching and chest-beating articles, usually by John Plender, wondering where free market capitalism had gone wrong and where it was heading.
My article was the culmination of two years of quiet guerilla warfare against free market finance, which I had waged since becoming a financial journalist after university. I secretly hated the free market, which I blamed for frustrating my desire to be a Sixties-style creative hippy. So I spent most of my time writing articles trying to find chinks in the armour of international finance, as an exercise in self-liberation…
It was quite fun to do this, while working at Euromoney – perhaps the arch-organ of international capital. And it was pretty easy to do, in 2000-2002, while financial markets were imploding.
But then, you know what happened? Firstly, I started to find proper outlets for my frustrated hippy creativity, so I became less of an emotional malcontent (one wonders how much radical criticism emerges as much from the emotional maladjustment of the critic as from the political maladjustment of their society); and secondly, I started to realize that actually private financial markets worked quite well, and the people who criticized them – people like Ann Pettifor, for example, or John Pilger, or Noreena Hertz – were by no means experts about the financial systems they criticized. (more…)
by Alex Evans | Mar 18, 2008 | Climate and resource scarcity, Global system
As the dollar, together with US equity and bond markets, continue an apparently inexorable slide downards, everyone’s been piling into safety – and especially into commodities. But as David Roche comments, “With global equity market capitalisation almost 10 times the notional value of commodity derivatives, the rush to commodities by investors has been like squeezing a quart into a pint pot.”
Opinion has been split on how much of the buoyancy in commodity prices is due to this short term price bubble; Martin Wolf, for instance, argued a couple of weeks ago that “Speculation seems not to be that important. If it were, inventories would be soaring. But they are not.” Still, that was then, and this is now – after the collapse of Bear Stearns, when the flight to safety looks more like a panic rush.
David Roche’s argument, though, is that the commodities bubble will prove short term because global recession will take the heat out of demand for commodities – for “contrary to received wisdom, economic decoupling [between the US and emerging economies] is unlikely.” Well, he may well be right about the decoupling, at any rate; Nouriel Roubini has also been saying so for a while, and he’s been pretty accurate so far.
So if the world does hit a serious downturn, and if commodity prices do take a tumble as a result, does that mean we can all relax about food prices? Not for long. Here’s why.
(more…)
by Alex Evans | Mar 17, 2008 | South Asia
The Economist’s James Miles is the only foreign correspondent with official approval to be in Tibet. More photos here.
Security is particularly intense in the Tibetan quarter itself. Helmeted riot police are posted every few metres along its narrow, winding alleyways. Residents are subjected to identity checks as they walk around. In the heart of the district, in front of the Jokhang temple, which is Tibet’s holiest shrine, two armoured personnel carriers are parked. On the front of one big red Chinese characters read: “Stability is Happiness”. On the other it says “Separatism is Disastrous.”
Meanwhile, Tim Johnson – and everyone else – is at the border:
This is an interesting time to be a foreign correspondent in China. Like dozens of colleagues, I am near the border with Tibet but unable to get in. I happen to be in Sichuan province. And I’ve been in contact with colleagues who I know are in Gansu and Qinghai provinces, all trying to get a feel for what’s going on among ethnic Tibetans. It is not easy. We are face some measure of difficulty, trying to outsmart Chinese provincial authorities who would just as soon muzzle the foreign press at times like this. None of us can enter Tibet, which is off limits to foreign reporters without a permit. I know of only one foreign journalist, James Miles of The Economist, who had the good fortune to be in Lhasa as events unfolded over the past few days …
We foreign reporters all take precautions. We have to switch vehicles often. Some of us swap out SIM cards in our mobile phones, or just turn them off. That way, authorities cannot triangulate mobile phone signals and figure out our locations.
A blogger called Kadfly – who’s backpacking around China – is on the ground in Tibet too. His take:
Yes, the Chinese government bears a huge amount of blame for this situation. But the protests yesterday were NOT peaceful. The original protests from the past few days may have been, but all of the eyewitnesses in this room agree the protesters yesterday went from attacking Chinese police to attacking innocent people very, very quickly. They appeared to target Muslim and Han Chinese individuals and businesses first but many Tibetans were also caught in the crossfire.
Here’s his friend Ben’s photo of the Potala Palace by the light of rioters’ fires:
