FT: Sovereign Wealth Funds Actively Seeking to Lessen Dollar Exposure
An article in today's FT paints a picture of SWFs growing worried about the large share of dollar based assets in their funds. The picture is anecdotal and describes an ongoing process, not some new development.
The two leading examples in the article:
One big sovereign fund in the Gulf has cut its dollar-denominated holdings from more than 80 per cent a year ago to less than 60 per cent, while China’s State Administration of Foreign Exchange (SAFE) has been looking to strike deals with private equity firms in Europe as a part of a strategy to reduce its dollar holdings.
There is more on the SAFE move, which seems to have been the prime factoid that got the article written:
The shift at China’s SAFE is significant because it holds the majority of the country’s $1,600bn in foreign currency reserves in dollar instruments and has lagged behind other governments, such as Singapore, in diversifying its currency exposure. SAFE has been holding talks with Europe-based private equity firms about putting billions of dollars into their latest funds, precisely because these funds are not dollar-denominated, say people familiar with the matter.
By allocating money to Europe-based private equity firms, SAFE could diversify away from the dollar, at least at the margin, without spooking the currency markets and driving the dollar down in a disorderly manner.
In addition, SAFE is encouraging the private equity firms with which it has relationships to make investments in natural resources companies in markets outside the US – in part, to hedge its exposure to the dollar.
A spokesman for SAFE declined to comment.
There seems to be a certain amount of growling in the article's sources, complaining about the losses in investments in US financials so far.
Meanwhile, Dow Jones reports that the yuan closed "sharply down" against the dollar today. Concerns the pace of the yuan's appreciation will slow after China's second quarter economic growth slowed also weighed...
An article on Bloomberg contains a warning from "Chinese bank regulators" that the current monetary restraints in place to curb inflation and the influx of hot money might be getting a little too tight.
The People's Bank of China raised its reserve ratio requirement to a record 17.5 percent last month to rein in loan growth and inflation. The China Banking Regulatory Commission has warned against ordering further increases, the person said, declining to be identified as he isn't authorized to speak publicly on the matter.
China's push to remove funds from the banking system resulted in the slowest loan growth in more than two years last month. The risk is that more banks will fall below the minimum requirement for short-term financial strength, the person said.
``While helping to control liquidity, further RRR hikes run the risk of repressing the financial system,'' wrote Sun Mingchun, a Hong Kong-based economist at Lehman Brothers Holdings Inc., in a July 15 note to clients. China may be approaching ``the limit where further hikes do more harm than good,'' he said.
CBRC's recommendations were sent to the State Council, China's cabinet, the person said.