Asia and South America focus for SWFs

Sovereign wealth funds (SWFs), with assets of about US$5 trillion, see Brazil, China and areas of Central America as the most attractive geographical regions for investment, while 70 per cent plan to increase their allocations to equity markets in the second half of the year, according to new research by Financial Dynamics International (FDI).

In a series of one-on-one interviews, FDI’s survey covered responses from senior executives of more than half of the world’s SWFs, and found that almost three quarters (70 per cent) were not currently invested in equity markets, but were planning to increase investment in this asset class in the second half of this year.

Charles Watson, group chief executive of FD, said while SWFs remained cautious they were clearly poised to re-enter the global equity markets in the not-too-distant future with compelling valuation propositions beginning to present themselves across North America and Western European equity markets.

The majority of SWFs interviewed confirmed that Asia and South America were the most attractive regions, but it was also only a matter of time before they started to commit significant funds again to the North American and Western European markets.

However, there was still some caution in the responses of SWF executives, with the view that valuations are yet to bottom.

This caution, combined with cash sources being diverted to support local financial stimulus packages in their own regions, will determine the speed with which SWFs will re-enter the equities market, according to the report.