Gulf funds weigh risk and reward in Trump’s new trade world order

• Wealth funds wary of instability
• Emerging markets ‘more attractive’
• Disruption could benefit Gulf

Gulf sovereign wealth funds, including Abu Dhabi’s Mubadala and Saudi Arabia’s Neom Investment Fund, see both risk and opportunity in the heightened global trade tensions linked to US tariffs.

“We know what an economic recession looks like – here we’re dealing with something slightly different,” said Oscar Fahlgren, chief investment officer at Mubadala’s alternative asset manager Mubadala Capital. 

“It’s not entirely clear what the rules of engagement are. They keep changing, and uncertainty is something that investors don’t like in general.”

Speaking this week at the Milken Institute’s annual Global Conference in Los Angeles, Fahlgren said the US may lose out to inward investment in favour of emerging markets.

“What is happening today is that with the US becoming increasingly unstable or volatile, the emerging markets are becoming more attractive.”

Between them, Gulf sovereign wealth funds control trillions of dollars of assets around the world, including the US. How and where they invest can make or break projects.

Gulf economies could benefit from the disruption to the global trading system and the tensions between the US and China.

Global capital flows towards the GCC are picking up, according to Majid Mufti, CEO of the Neom Investment Fund, the strategic investment arm of the $500 billion Neom giga-project.

“We’re seeing companies coming in from Europe where it’s also very expensive on the energy side, the labour laws,” he told the conference in Los Angeles. “We’re seeing Asian companies looking for an extension of where they exist today.”

Amid the volatility in global markets, the Abu Dhabi Investment Council (Adic), a Mubalada unit, also sees opportunity. In 2008 it bought a 90 percent stake in New York’s Chrysler Building as it sought to expand its investments outside its home base.

“There are opportunities that come in terms of flow of capital to certain pockets,” Shiv Srinivasan, Adic chief investment officer, said at the Milken Institute event. 

• Mubadala to focus on Asia investments says CEO
• US treasuries could become less of a safe bet for Gulf investors
• UAE’s $1.4trn US pledge is political positioning, experts say

Even the US might get some Gulf capital, according to Sara Nooruddin, deputy chief investment officer for Osool Asset Management, the investment arm of Bahrain’s Social Insurance Organisation and Military Pension Fund.

“We believe that there are a lot of niche opportunities that will come out because of this uncertainty,” she said. 

It is against this background that President Donald Trump visits Saudi Arabia, the UAE and Qatar next week. Between them, the trio have pledged to invest and trade at least $2 trillion with the US over the next four to 10 years. Trump is looking for another $400 billion or more on top of that.

For Nayef Al Hajraf, a former minister of finance of Kuwait, the risks outweigh the opportunities. It is home to the world’s fifth biggest sovereign wealth fund, the Kuwait Investment Authority, with assets worth more than $1 trillion.

“You can’t plan your business strategy if there’s ambiguity everywhere,” Al Hajraf said. “Yes, there might be an opportunity, but the potential will be very difficult to oversee unless we have more clarification of what is the intention of the Trump administration for the next four years.”