Abu Dhabi & Friends Save
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As of this writing, the U.S. economy and the stock market are on the skids. The credit crisis, mortgage meltdown, declining dollar, rising oil prices, housing market problem and any other scary term the media is slinging around, is happening.
This presents buying opportunity for the global market. Overseas investors are buying U.S. companies or investing in well known firms. Is there a problem with this? Merrill Lynch, Citibank and Apple don’t think so.
One of the larger investors buying American is the Abu Dhabi Investment Authority. Abu Dhabi is a sovereign wealth fund with over $875 billion in assets. This amount puts them by far as the largest sovereign wealth in the world.
In November 2007 they invested $7.5 billion into Citibank giving Abu Dhabi Investment 4.9% ownership. Prince Alwaleed Bin Talal Al Saud of Saudi Arabia comes in a close second with 4.3% ownership.
The falling value of the dollar gives overseas investors more buying power in America and the fact that U.S. companies just need money, makes them more receptive.
In 2007 oversea firms purchased and invested over $414 billion in the U.S. Is this a trend? Well, 2007 investment was up 90% over 2006. With a bear market approaching…..or maybe even happening, depends where you get your news from, stocks are cheaper.
The industries being infiltrated are not just the financial markets. Steel, food, real estate and energy are but a few.
Here are two sides to this story. There could more, such as whose fault this whole miss is. But, what's done is done.
First, there is the foreign investment is good scenario:
Hey. We could use the cash! Let’s focus on the banks. Citibank, Morgan Stanley & Merrill Lynch got slammed by the mortgage market. Not just because many home buyers defaulted on their loans; but banks had complex financial products tied to the housing market.
The profitably of these financial products looked good on paper. But as they say, “Man plans and God laughs.”
Wall Street experienced loses estimated at $100 billion dollars. So far that is.
Foreign investment relieves the pressure. Sure, American jobs have been eliminated by cheaper labor costs overseas; but domestic jobs have been created as well.
General Motors and Ford are not hanging out their Help Wanted signs yet. However, Toyota and Sony are. These companies are investing money in the U.S. and hiring. During November 2007 a French company created almost 200 automotive jobs in Michigan.
You think you have a big credit card bill? You should see Uncle Sam’s. Thanks to China’s purchase of U.S. treasury bonds we’re able to finance the national debt.
Several U.S. and European banks have secured billions of capital infusion. They need the money. The structure of our capital markets has too much riding on this.
There are also opinions that foreign investment is dangerous to our long term health. We all remember DP World. Our friendly neighborhood company owned by the government of Dubai.
All they wanted to do was manage shipping ports in a few major American cities. Although President Bush was for this deal to proceed it was defeated by congress. What could be the long term implications of U.S. companies sharing ownership with countries such as: Saudi Arabia, Kuwait, Korea, Singapore and Japan?
It’s speculation right now. The Saudis are our friends. I doubt they could force all American women to wear a burkha just because they own a piece of Citibank. The slices of investment that have been purchased are relatively passive.
However, the Iraqi conflict that embroils the U.S. involves many countries. Even countries not involved in the war such as Russia. If this conflict should spread, it’s not entirely clear whose side everyone will end up on.
China is a growing investor in the U.S. How would that play out for America if tensions should flare between China and Taiwan?
The above ETF chart is SPDR S&P Emerging Middle East & Africa (GAF). It tracks an equity index from countries such as: Egypt, Israel, Jordan, Morocco, Nigeria and South Africa. The country with the largest investment weight is South Africa. Israel comes in second.
Institutions such as the Abu Dhabi Investment Authority unfortunately are not part of this index.
Canada - $65.6 Billion (I did not know that)
Britain - $45.6 Billion
Australia - $30.1 Billion
Spain - $24.2 Billion
Germany - $24.2 Billion
United Arab Emirates - $17.2 Billion
Saudi Arabia - $12.7 Billion
I hope these numbers put everyone at ease. Saudi Arabia comes in seventh. The U.S. may be getting a little of a reprieve when it comes to foreign investment.
Istithmar, a sovereign wealth fund owned by the Dubai government has said they are looking to diversify into Asia. David Jackson, CEO of Istithmar said “Countries such as China where we opened an office are very welcoming to sovereign wealth funds, so more looking to invest there.”
Who is Istithmar you might ask? They own high-end U.S. clothing store Barney’s.
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