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Why Sovereign Funds are Unfazed by Latest Market Swings

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It has been hammered into the global collective consciousness that sovereign wealth funds are long-term institutional investors and contrarian stylistically at many instances. The latest U.S. stock market drop has put some investors at an impasse. Will the fall continue? How important is market timing?

The deleveraging of select institutional investors, such as systematic trading allocators, likely contributed to the stock market drop on the fifth of February. The plausible technical-driven sell-off has long-term pensions and sovereign funds licking their lips for the buy the dip moment. The California Public Employees’ Retirement System (CalPERS) months ago signaled they were increasing public equities and reducing the amount of private equity managers being used.

There is legitimate anxiety of higher interest rates with a new Federal Reserve chairman – Jerome Powell – among traders and investors. The Federal Reserve being cautious on triggering a U.S. recession is undoubtedly looking at consumer sentiment and production indicators, before the signal or vote on rate decisions for the near future. The slowdown in quantitative easing (QE) policies have already impacted global markets, causing a rise in bond yields across markets. Risk-seeking traders playing the short-term volatility game felt the heat in early February, after the massive single-day decline in stock markets. Despite sovereign funds having a pool of over US$ 7 trillion in assets, retail investors have a major role in the ups and downs of the U.S. stock market. Wall Street often markets exchange-traded products and mutual funds off of stock-trading websites and financial news sites. Many retail investors dabble in stocks and exchange-traded products (ETP).

VIX Product Collapse

The Monday mayhem of February 5, 2018, jolted investors, both retail and institutional money. Two exchange-traded products tied to the Chicago Board Options Exchange (CBOE) volatility index – or VIX – collapsed in afterhours futures trading on Monday – February 5, losing 95% of their value after the popular indicator of investor anxiety doubled in response to the worst day for markets since the summer of 2011. CBOE Global Markets paid the price later on the sixth; as of 4:00 p.m. EST that day, CBOE’s stock was trading down 10.42% at US$ 116.93 a share.

The VelocityShares Daily Inverse VIX Short-Term ETN (XIV) and ProShares Short VIX Short-Term Futures ETF (SVXY) – both issued by Credit Suisse – provide single-day returns on the inverse of the VIX, and have been immensely popular over the past year with traders banking on markets remaining mild. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

Emirates NBD Acquires Turkey’s Denizbank in $3.2 Billion Deal with Sberbank

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In a bid to establish itself as one of the region’s leading providers of financial services, Emirates NBD – Dubai’s largest bank – has entered into a deal to acquire a 99.99% stake in Turkey’s DenizBank A.Ş. for a bargain price of US$ 3.2 billion from Russian state-owned lender Sberbank. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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Brazilian President Michel Temer Orders Liquidation of Sovereign Wealth Fund

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Brazilian President Michel Temer signed an executive order to shut down the country’s sovereign wealth fund. The money in the sovereign fund will go toward repayment of foreign debt.

The Sovereign Fund of Brazil, also known as Fundo Soberano do Brasil, was formed in 2008.

The formation of the Fundo Soberano do Brasil was authorized by then Brazilian President Luiz Inacio Lula da Silva.

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CDPQ Boosts Stake in Invenergy Renewables

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Caisse de dépôt et placement du Québec (CDPQ) boosted its ownership stake in Chicago-based Invenergy Renewables LLC. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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