'N America may be more affected than Mideast by lower oil'

(MENAFN- Gulf Times) North America is expected to be more affected than the Middle East by lower oil prices when it comes to funding challenges for sovereign investors, according to Invesco, a leading independent global investment management firm.

"Low oil price creates expected funding challenges for some sovereign investors € notably North America expects to be more affected than the Middle East," said Invesco in its Global Sovereign Asset Management Study, an in-depth report on the complex investment behaviour of sovereign wealth funds, which conducted survey amongst more than 50 individual sovereign investors across the globe, including Middle East based sovereign wealth funds, representing $7.09trn of assets.

The steep fall in oil price has major implications for economies, stock markets and current account surpluses across the globe, all of which can drive funding for sovereign investors in the short term.

However, this year's study highlights that not all sovereign investors feel equally exposed to the effects of the falling oil price, revealing regional differences depending on the level of oil exposure (defined as oil rents as a percentage of gross domestic product) as well as governance, risk and liquidity management factors.

"Perhaps counter-intuitively, the oil-funded emerging market sovereigns in the Middle East view themselves as being the least affected from a funding perspective," it said.

Rather, North American sovereign investors, who have emerged from state surpluses driven by high commodity prices, were the most frequent to say that they expected new funding to be "negatively" affected in the short term with the vast majority (80%) of North American sovereigns forecasting a decline in funding this year and the remaining 20% expecting it to remain the same.

"The timing of the fall in oil prices has been particularly challenging for state governments in North America and Canada; with reduced revenues from oil producers having driven down state taxation income at the same time as state expenses are rising sharply as a result of the baby boom generation retiring," according to Nick Tolchard, chair of Invesco's Global Sovereign Group and Head of Invesco Middle East.

Sovereign investors, including those in the Middle East, are in a stronger position to manage funding and concerns over withdrawals resulting from the low oil price, it said, adding the Middle East sovereigns placed the highest importance on investment objectives € with the highest average target returns and the longest average time horizons.
Some respondents expressed concern that the fall in oil price may result in a short-term reversal to more conservative investment strategies and defer the implementation of more progressive long-term allocation trends towards alternatives.
"Despite this, it remains clear that sovereign investors feel they are in a much stronger position to deal with the impact of falling oil prices this year than they would have been in 2008," it said.