Wealth Funds Investing in ETFs

Citigroup's (C) raising of $7.5bn in new capital at a coupon of 11 per cent from the Abu Dhabi Investment Authority to augment its overstretched balance sheet is helping its stock and exchange-traded funds such as the iShares S&P Global Financials ETF (IXG).

Investment funds from the Middle East and Asia have invested an estimated $37B in shares of western financial companies this year in a sign the funds are taking a more optimistic view than other investors of the growth prospects for banks, exchanges and asset managers.

According to the Financial Times, analysts at Morgan Stanley, the investment in financials by sovereign wealth funds far outstrips the amount they have committed to other sectors. Bankers say there is a big appetite among wealth funds for further investment in financial assets hit by the credit market turmoil.

Meanwhile Singapore's Temasek chairman recently stated that the group would no longer a seek a controlling stake in “iconic” foreign companies and instead opt for minority stakes in future investments with the participation of local partners. The new policy reflects the recent controversy over Temasek’s investments in Thailand and Indonesia which may be caught up in a global backlash against sovereign wealth funds, particularly from such emerging countries as China, the Middle East and Russia.