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Even Norway’s Sovereign Fund is at Risk Now

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Sovereign wealth funds that sprung from countries where the price of oil is pivotal for the health of fiscal budgets are at greater risk today than 5 years ago. Why? First, the global oversupply of oil is rampant, a blessing for energy-constrained countries like India and a nightmare for the Gulf States. The price of Brent crude oil, the world’s benchmark oil price, fell below US$ 50 a barrel recently, sinking to 6-month lows. At that price, many oil-producing nations will either have to sell-off assets in vehicles such as sovereign wealth funds, print currency or raise debt to fund their respective budgets. Record oil production in the United States had led to the Gulf region producing more oil as well. In July, OPEC production was at 31.5 million barrels per day, an increase of 100,000 from June. Higher oil output came from Angola, Iraq, and United Arab Emirates. Furthermore, Iran is reported to have augmented oil production to 2.86 million barrels a day. With an estimated 40 million barrels of oil in storage tanks, the result of an embargo lift on Iran will send shockwaves to energy markets.

A quick sell-off of European unlisted equities could send a shockwave into stock markets.

On the demand side of the equation, tepid U.S. and Chinese economic data have smacked oil prices downward. In China, the Caixin Manufacturing Purchasing Managers Index, a trusted gauge of nationwide manufacturing activity, fell to 47.8 in July from 49.4 in June, the lowest level of the index since 2013. An index score under 50 indicates a contraction in activity. Bottom line, feelings of oversupply and shaky demand are key factors affecting the market prices of black gold.

Possible Selloff by Norway’s Sovereign Wealth Fund

Norway walked away with few bruises from the global financial crisis of 2007. However, prolonged oil prices at below US$ 50 a barrel has become the country’s kryptonite. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

SWFI First Read, September 19, 2018

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QIA Eyes Investment in Chinese Lender Lufax

The Qatar Investment Authority (QIA) is in talks about a possible investment into Shanghai-based Lufax, one of China’s largest online lenders. The seller of the possible stake is China’s Ping An Insurance (Group) Co. Ltd. Lufax’s official name is Shanghai Lujiazui International Financial Asset Exchange Co. Ltd.

Wealth Funds Back Hotpot Giant

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Japanese Government Capital Provides Initial Life for Texas Bullet Train

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Dallas-based Texas Central Partners, LLC is the developer of a proposed high-speed rail system, dubbed the Texas Bullet Train, between Dallas and Houston. Project costs are estimated between US$ 12 billion to US$ 15 billion. The developer secured US$ 300 million in project loans from Japan Overseas Infrastructure Investment Corporation for Transport & Urban Development (JOIN) and the Japan Bank for International Cooperation (JBIC). [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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DOJ Investing Tesla Over Musk Comments

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The U.S. Department of Justice (DOJ) is conducting a fraud investigation over Tesla as its CEO Elon Musk made public statements on twitter. This is a criminal probe. In addition, earlier, SWFI reported the U.S. Securities and Exchange Commission (SEC) is conducting a civil inquiry into Elon Musk regarding his statements.

This all surrounds Musk tweeting in August that he was thinking of taking Tesla private and had “funding secured” for the transaction. Both government authorities are seeing if Musk misled investors and violated federal securities laws with his public statements.

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