The bounce-back in oil prices and the availability of liquidity globally are some of the factors that may have eased the selling pressure that could have otherwise emerged, suggested U R Bhat, director at Dalton Capital Advisors (India). The immediate outlook does not point towards an exodus, he added.
“Oil prices have recovered dramatically,” he pointed out.
Brent crude oil prices had fallen below $16 per barrel in April. They had been trading around $40 per barrel on Tuesday.
Deven Choksey, managing director of KRChoksey Investment Managers, said central banks and governments have been making available large amounts of money in a bid to stimulate global economy. This makes the prospects for significant outflows from foreign investors unlikely, as easy liquidity conditions are expected to persist for some time.
“They are unlikely to take the money back,” said Choksey.
SWFs may look inwards, even as they capitalise on attractive valuations brought on by the pandemic in foreign markets, according to an August 7 paper titled, ‘Sovereign Wealth Funds
and the Covid-19 shock: Economic and Financial Resilience in Resource-Rich Countries’ from authors, including Bocconi University’s Bernardo Bortolotti, University at Buffalo’s Veljko Fotak, and Chloé Hogg from the London School of Economics.
“Asset allocations will likely shift... (towards) ...domestic assets, but portfolio rebalancing will also entail that investment opportunities will be seized in global equity markets, especially in the most severely damaged economies where assets can be bought at the most discounted prices,” it said.
“Importantly, the survival and future relevance of SWFs in their domestic economies will depend upon their countries’ resilience in the face of the... (Covid-19 pandemic) ...shock and the extent to which their sovereign assets are used as buffers,” it added.
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