SWFs Report: Investments Move Away From U.S. Businesses

This is a follow-up to a post from July. Isn't it funny how when we need the money the politicians are not screaming about this anymore? In fact, one could make the argument they are begging for SWF Investment now.

File this under "be careful what you wish for, you just might get it." The good news? SWF's are not investing large sums in U.S. businesses. The bad news? SWF's are not investing large amounts in U.S. businesses.

The latest Monitor Group analysis is an update to its June 2008 report: “Assessing the Risks: The Behaviors of Sovereign Wealth Funds in the Global Economy.” Key findings of the latest analysis include:

• In the second quarter of 2008 (Q2 2008), funds in the Monitor SWF transaction database executed 43 deals totaling $26.5 billion. In contrast, those funds executed 42 deals totaling $58.3 billion during the previous quarter (Q1 2008).
• SWFs continued to invest actively in emerging markets. In Q2 2008, more than half the deals and funds invested were in emerging markets (vs 40% in Q1). SWFs carried out 26 deals and invested $15 billion in BRIC and non-OECD countries.
• Investment in North America dropped dramatically. In Q2 2008, four deals totaling less than $1 billion were received by North America. In contract, this region received seven deals totaling $23 billion during the previous quarter (Q1 2008).
• Half of the deals by value in Q2 were in real estate (shopping centers and real estate management companies). Real estate had the largest number of deals (12) and the highest investment ($13.7 billion) in Q2 2008.
• During Q2 2008, investment has shifted away from financial services. SWFs carried out 10 deals and invested $4 billion in the financial services sector during Q2 2008. In the previous quarter (Q1 2008), funds carried out 13 deals totaling $43.4 billion.

William Miracky, Senior Partner of Monitor Group, said:

Our transaction data shows that SWFs have focused recent equity investment away from volatile geographic markets and sectors, like North America and financial services, and are instead seeking more attractive returns in emerging markets and other sectors, including real estate.

The country taking the lion share of the business? India. There was heavy investment in the healthcare, consumer and aerospace sectors in India in Q2. This also follows the trend they exhibited in other nations. This is particularly distressing to those who are looking for funds to flow to the U.S. Those are not sectors in the U.S. that lend itself to foreign investment - think WalMart (WMT), Target (TGT), GE (GE) or United Health (UNH).

But, for shareholders of either WalMart, GE or even Dow Chemical (DOW), who are aggressively expanding into the region, it is good news. A steady flow of funds to the region raises the standard of living for all and by default the sales prospects for those doing business there.

Bill Ackman at the Value Investing Congress commented on "opportunistic capital" (hedge funds and SWF's). He said that "opportunistic capital is always the first in" when it comes to investment (listen to press conference here). It should be noted that Russia has received zero deals. For those thinking of investing overseas, if those with the money are avoiding a country, perhaps you ought to think twice before committing funds there? Based on their activity, India and Brazil seem to be the nation's of choice both for opportunity and safety of capital.

Now, for those afraid of SWF's, please note the following graph.

click to enlarge

A disclaimer: This is my chart and Monitor Group in no way implies the "Bailout" equates the U.S. to a SWF. This chart is purely for comparison purposes.

What is the point? SWF's are a nice boogey man for people intent on stirring things up but they really are dwarfed not only buy U.S. Mutual funds but what our gov't itself. Let's not forget, $250b of the U.S. investment in banks wasn't an option for the banks....that is not an issue with SWF's.

Disclosure ("none" means no position): Long WMT, GE, Dow, none.

Comments

[Elaine Supkis:]

elainemeinelsupkis.typ...

At Culture of Life News, we not only have an extensive analysis about Sovereign Wealth Funds but also a really cute cartoon.

Todd, it certainly is true that the US and other G7 nations ran a concerted overt attack on all SWFs in the world last year just like the G7 tried hard to pretend gold was worthless and it would be best for all the central banks to sell of huge stashes of gold.

These moves didn't impress the SWF nations including Norway and Alaska [Palin pushed hard to have Alaska leave the United States].


Sovereign Wealth Funds were set into motion to overcome inflation. Japan and China park massive funds in their own FOREX reserves but China has decided to use .2% of this money to expand their influence in the world. This is a massive, massive amount of money sitting right behind the SWF run by China!

If the US kills the dollar, you can bet, the Chinese will first drain out their FOREX reserves to buy up most world resources like in Africa, South America, Mexico, Europe and the US itself.

Mandarin is a very difficult language. We should require it in school since our children will need to know how to use it when they grow up.

2008 Oct 16 12:29 PM