Sovereign Wealth Funds’ Picky Behavior in Emerging Markets


Sovereign funds like the Abu Dhabi Investment Authority (ADIA) and Norway’s Government Pension Fund Global (GPFG) have maintained a strong belief of getting more exposure to emerging markets. This ongoing migration of trying to identify the “right” emerging markets has been challenging. Brazil, once a hot market for sovereign wealth activity, has suffered negative returns in its equity markets. The MSCI Brazil index for 2014 returned -14.04%, 2013 fared worse at -16.04%. Developing markets like Brazil, sovereign wealth funds will be highly selective when deploying capital. However, certain emerging markets are faring better. Looking at the S&P Access China A index, an S&P Dow Jones Index that was built to “reflect the universe of China A-shares available to foreign investors through the Northbound Trading Segment of the Shanghai-Hong Kong Stock Connect Program,” has a 1-year (starting on June 11, 2014) annual return of 159.6%. Mainland Chinese equities have attracted foundations like the Bill & Melinda Gates Foundation and wealth funds like the Qatar Investment Authority (QIA) and Kuwait Investment Authority (KIA). In addition, domestic investors in markets like China are buying equities, driving up market capitalization. Chinese retail investors have been opening up new brokerage accounts at record pace.

Flying back to Brazil, sovereign wealth funds will most likely be a bit more cautious in large investment transactions. In 2012, Mubadala invested billions into assets controlled by former Brazilian billionaire Eike Batista. By 2014, Mubadala had to sink time, resources and effort into recovery efforts. Mubadala ended up getting stakes in various units such as Batista’s mining company MMX. Singapore’s GIC Private Limited waited and eventually moved in on a deal to spend nearly a billion on Brazil’s largest hospital chain, Rede D’Or São Luiz – banking on healthcare demand needs in Latin America.

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