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Middle East sovereign wealth funds see promise in India

The BSE (formerly Bombay Stock Exchange) and other Indian investment opportunities are proving of interest to Middle Eastern sovereign wealth funds
  • 100% of Middle East SWFs see investing in India as attractive
  • Emerging markets expected to match or better developed ones
  • Wealth funds’ assets under management fell 7.8% in 2022

Sovereign wealth funds across the Middle East are eyeing up opportunities in India as higher interest rates push emerging markets to the forefront for investors.

The latest Invesco Global Sovereign Asset Management Study said that, while Europe and the US continue to hold allure, 100 percent of funds in the region viewed India as an attractive opportunity for emerging market debt this year.

Globally this number stood at 76 percent.

“The magnetism of the Indian market is even more pronounced among Middle Eastern SWFs, with a unanimous 100 percent recognising its appeal,” said Josette Rizk, head of Middle East and Africa at Invesco.

“These figures underscore the growing confidence in India’s economic prospects and affirm its standing as a prime destination for debt investment among emerging markets.”

India’s attractiveness is based around political stability, a growing population, a supportive regulatory environment and a friendly attitude for sovereigns.

India investmentInvesco
Josette Rizk, head of Middle East and Africa at Invesco

Rizk explained that although SWFs have been allocating investment to China, it “has had some issues in the last two years, which has put some sovereigns on wait and watch”.

She added: “India continues to be an interesting story for (wealth funds).

“They’ve done a lot of work around their economy. They are opening up. They are attracting foreign capital.”

Invesco’s study is based on the views of 142 chief investment officers, heads of asset classes and senior portfolio strategists at 85 sovereign wealth funds and 57 central banks, who together manage $21 trillion in assets.

Attractive markets

The higher interest rate environment has prompted a renewed appetite for emerging markets.

According to the study, 71 percent of sovereigns expect emerging markets to either match or better the performance of developed markets over the next three years.

Rizk said: “The normalisation of interest rates looks poised to disrupt the status quo, as this year’s study revealed a broadened appetite for emerging markets among sovereign investors.

“Respondents sought new sources of diversification and higher returns across emerging Asia, Latin America and Africa.

“The emerging markets story is something that’s coming back into play.”

The value of assets managed by SWFs fell by 7.8 percent in 2022, down from $11.5 trillion to $10.6 trillion, according to consultancy Global SWF.

The swift rise in interest rates and sharp correction in listed asset prices led most SWFs to report negative returns for 2022, the study revealed.

Additionally, 88 percent of Middle Eastern investors anticipate higher inflation in the coming decade than the last. 

Rizk said respondents “are definitely expecting inflation to stay higher than the previous year,” even if it falls a little.

Globally, sovereign investors remain interested in private assets. Infrastructure is seen as the overall most attractive asset class over the next five years, ahead of fixed income, private equity and listed equity.

In terms of those who were interested in real estate sectors, 83 percent of Middle East SWFs found industrial the most attractive segment, 83 percent were attracted by investments into data centres and 83 percent, again, in leisure and hotel resorts.

Some 67 percent said they were interested in investing in medical and healthcare.

Despite these expressions of interest, real estate and retail figured low on the overall investment horizon.

“With the change in the work landscape, the work environment, the need for office space has changed,” Rizk said, adding that “zero percent of sovereigns from the Middle East see retail as an attractive segment”.