A growing number of countries are repatriating gold reserves as a safeguard against Western sanctions against Russia. This is stated in an Invesco survey of central banks and sovereign wealth funds, published today and cited by Reuters.
The financial market crash last year caused widespread losses for sovereign wealth fund managers, who were forced to “completely” rethink their strategies with the view that higher inflation and geopolitical tensions will persist for longer.
More than 85 percent of 85 sovereign wealth funds and 57 central banks that took part in Invesco’s annual survey of global sovereign assets believe that inflation will be higher in the coming decade than in the transitional one.
Gold and emerging market bonds are seen as good bets in this environment, but last year’s Western freeze of almost half of Russia’s $640 billion in gold and foreign exchange reserves in response to the invasion of Ukraine also appears to have led to a shift in sentiment .
A survey indicates that a “significant number” of central banks are concerned about the precedent set. Almost 60 percent of those surveyed said it made gold more attractive, and 68 percent kept their gold “at home,” up from 50 percent in 2020.
“We kept the gold in London but transferred it back to the country of origin to keep it as a safe haven asset,” said an unnamed central bank.
According to Rod Ringrow, head of official institutions at Invesco who oversaw the preparation of the report, this is a widely held view.
“If it’s my gold, then I want it in my country, is a mantra that was repeated often last year,” he declared.
Geopolitical concerns combined with opportunities in emerging markets are also encouraging some central banks to diversify away from the dollar, BTA reported.
A growing 7 percent of those surveyed believe the rising U.S. debt is also a negative for U.S. dollar assets, although most still see no alternative to its role as the world’s reserve currency. Those who see the Chinese yuan as a potential contender have fallen to 18 percent from 29 percent last year.
Nearly 80 percent of the 142 institutions surveyed see geopolitical tensions as the biggest risk over the next decade, and 83 percent cite inflation as a concern over the next 12 months.
Infrastructure is currently seen as the most attractive asset class, especially projects involving renewable energies.
Concerns about China mean India remains one of the most attractive countries for investment for the second year in a row, and the trend for companies to locate factories close to where they sell is a driving factor for countries such as Mexico, Indonesia and Brazil.
Like China, the UK and Italy are seen as less attractive, and rising interest rates along with telecommuting and online shopping habits, which have become a reality during the COVID-19 pandemic, mean that real estate is currently the most – the less attractive private asset.
According to Ringrow, the best performing sovereign wealth funds last year were those that recognized the risks associated with rising asset prices and were prepared to make significant changes to their portfolios. This will be the situation in the future as well, he claims.
2023-07-10 12:00:00
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