Gulf’s sovereign funds are now gilt-edged airbags – Breakingviews

Gulf’s sovereign funds are now gilt-edged airbags – Breakingviews:

The Middle East’s big sovereign wealth funds are set to become coronavirus airbags. The $700 billion Abu Dhabi Investment Authority, $300 billion Qatar Investment Authority and Saudi Arabia’s $300 billion Public Investment Fund control a big slug of global assets and have become a fixture in global dealmaking. But they’re attached to increasingly precarious economies.

Emerging markets, including Saudi Arabia, are hearing a deafening sucking sound. The cumulative $70 billion-plus of non-resident portfolio outflows since late January is nearly three times the level seen in 2008, according to the Institute of International Finance. With a barrel of Brent crude oil now trading under $30, Saudi, the United Arab Emirates, Bahrain, Oman, Kuwait and Qatar are all well below the point at which their budgets and their current accounts balance. With inventories soaring to the point that oil may not even be able to be stored, far less sold, they could stay low for years.

When crude was last at this level, between 2014 and 2016, Saudi and its peers cut subsidies and introduced new taxes that helped curb demand and protect their pegs. They could do so again, or hike debt. Yet even autocrats can only push subjects accustomed to fiscal perks so far, and the spread of a Saudi Eurobond maturing in 2030 over U.S. Treasuries has more than doubled over the last month, Refinitiv data shows. Raiding rainy-day funds might be preferable.

The funds have airbag capacity. Most have a liquid buffer. ADIA, for example, doesn’t disclose its exact asset breakdown but can hold a maximum of 30% in government bonds and cash.