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A Bitter Pill for Emerging Markets

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cloudsSovereign wealth funds have opened their enlarged ears on Ben Bernanke’s spoken words – the word tapering. Central bank actions have contributed volatility in government bond yields which has stressed public investors. A gradual withdrawal of excess liquidity would stem the tide of hot money flowing to emerging markets. This is a wake-up call for institutional investors that have significant exposure to emerging markets. Sovereign funds like Temasek Holdings and Singapore’s GIC have made huge bets in large companies in Southeast Asia, especially in banking. The Abu Dhabi Investment Authority modified their asset allocation to be more accommodative to investments in Latin America and Asia. The China Investment Corporation has been an avid investor, investing in South Africa’s Shanduka Group, paying two billion rand for a stake.

The majority of institutional investors still perceive emerging markets as an asset class, even though each “emerging market” is quite diverse in their makeup. The effect of QE policy will impact each emerging market different.

BRICS
Trouble is brewing in the world of BRICS. Profiting from positive economic growth in recent years, a slowdown in growth will fan the flames of discontent. Nations with current account deficits like Brazil seem to be at most risk for institutional investors. In addition, commodity dependent countries may be vulnerable if China slows down their economic workshop.

Could the decrease in hot money have an impact in Brazil? Inflation in Brazil has caused social tension. The rise in the cost of public transportation augmented the cost of living in Brazil. On June 18, 2013, 50,000 protestors assembled in the streets of Sao Paulo to express frustration at the government.

Oman SGRF Contemplates $1 Billion Infrastructure Fund

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Oman’s State General Reserve Fund (SGRF) is in discussions on forming a US$ 1 billion infrastructure fund. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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Norway’s GPFG Banned from Investing in 9 Companies Over Nuclear Weapons

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The recent false alarm caused by a state employee in Hawaii (who was not terminated and reassigned to a new position), triggering the Emergency Alert System message at 8:07 a.m. caused pandemonium in the state. After decades of failure in diplomacy between the United States and North Korea, the threat of a nuclear missile attack has grown since. The states of Alaska and Hawaii are the closest states to North Korea.

Besides the recent news in the world of nuclear missiles, Norges Bank oversees the management of the country’s sovereign wealth fund. The central bank has moved to ban nine companies from the Government Pension Fund Global. In addition, one company has been placed under observation. The Executive Board of Norges Bank’s decisions on exclusion were made on the basis of recommendations from the Council on Ethics. However, before moving to exclude a company, the central bank may consider other options, such as the exercise of ownership rights. In these instances of companies, the board determined that it was appropriate to use other measures in these cases.

The Council on Ethics’ recommendations to exclude:
Risk of severe environmental damage and serious or systematic violations of human rights
Evergreen Marine Corporation (Taiwan) Ltd
Korea Line Corporation
Precious Shipping PCL
Thoresen Thai Agencies PCL

Unacceptable risk of serious or systematic violations of human rights
Atal SA

Over involvement in the production of nuclear weapons
AECOM
BAE Systems
Fluor Corporation
Huntington Ingalls Industries Inc
Honeywell International Inc (already previously excluded)

Placed Under Observation
Pan Ocean Co. Ltd

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Sistema to Pledge Assets to Help Fund Settlement

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The Russian Direct Investment Fund (RDIF) is helping a settlement situation between two Russian economic powerhouses. In January 2018, Sistema, under a settlement, is mandated to pay Bashneft oil company, which is owned by energy behemoth Rosneft, 100 billion roubles (US$ 1.8 billion) by March 30, 2018.

[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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