Net private capital flows to emerging markets are expected to reach a record $620bn this year, after a 2006 total of $573bn, according to the latest report by the Washington-based Institute of International Finance (IIF).
The think tank, owned by more than 370 financial institutions in over 60 countries, also forecasts that private flows will continue to rise in 2008 and will reach another high level of about $600bn.
However, the IIF adds that recent and prospective flows do not look so large when appropriately scaled by GDP. The IIF forecast of net flows of $593bn in 2008 would be 3.8% of GDP, which is about the average for 1989-2006. The $620bn estimate for 2007 of private flows compares dramatically with estimated official flows for 2007 of $3.3bn.
The IIF noted that emerging market economies in aggregate are continuing to register sizable current account surpluses. China alone is likely to see a current account surplus of $380bn this year and $450bn next year, with its foreign exchange reserves reaching about $1900bn by the end of 2008.
The IIF report added that the foreign exchange reserves of the 30 leading emerging market countries are set to rise by $756bn this year, after a gain of $554bn in 2006 while a further rise of $707bn is projected for 2008.
STANDARD CHARTERED GLOBAL RESEARCHSTATE CAPITALISM: THE RISE OF SOVEREIGN WEALTH FUNDS
The world’s 20 largest sovereign wealth funds (SWFs) manage assets worth an estimated $2072bn according to the latest study by Standard Chartered Bank. Heading the list is the UAE’s ADIA fund with an estimated size of $625bn. This is followed by Norway’s state pension fund with $322bn, Singapore’s GIC with $215bn and the Kuwait Investment Authority with $213bn.
The report notes that 14 of the 20 funds have commodities as their main source of income and with average annual performance of just under 20% the 20 funds could reach $13,400bn over the next decade. Author and Standard Chartered chief economist Dr Gerard Lyons highlights three main trends: “The influence of SWFs on financial markets is set to grow. Expect these government-controlled funds to take bigger financial stakes in equity and bond markets across emerging economies; to feed more money into alternative investments such as hedge funds and private equity and to boost strategic links with countries that have not shared fully in globalisation.
“There is a likelihood of western governments and SWFs clashing over what they can buy. A protectionist backlash threatens global trade. Western countries may need to accept the rise of SWFs as a further sign of a shift in the world economy.”
