Middle East Sovereigns Eye Emerging Markets For New Capital Inflow

Emerging markets are the preferred destination for new capital inflow from Middle East sovereigns, according to the Invesco Global Sovereign Asset Management Study.

The report revealed that emerging markets such as Latin America, Africa and China continue to be the winners of the new global sovereign flow despite a fundamental preference, relative to the total portfolio, for developed markets.

The study, which was conducted amongst more than 50 individual sovereign investors worldwide, representing $5.7 trillion worth of assets, also highlighted that almost half (46 per cent) of global sovereign investors and 54 per cent of Middle East sovereign investors expect to see an increase in new funding in 2014 beyond the levels seen in 2013.

Alternative investments remain the clear asset class winners in terms of new asset allocation within sovereign investor portfolios. The report revealed that sovereign investors expect to increase new allocations across all major alternative asset classes in 2014, including global private equity (83 per cent in 2014 compared to 60 per cent in 2013) and global real estate (100 per cent in 2014 compared to 67 per cent in 2013).

These results suggest that appetite for alternatives is driven by wanting to allocate assets strategically rather than tactile allocations merely for short-term returns, said the report.

Middle East sovereigns reflected the sentiment, favouring alternative investments such as private equity and real estate.

“It is clear that a strategic asset allocation strategy is driving sovereign investors to alternatives, rather than tactical allocation,” said Nick Tolchard, head of Invesco Middle East & co-chair of Invesco’s Global Sovereign Group.