Stocks to take $404 billion hit in 2016

London: Sovereign wealth funds (SWFs) might take a further $404 billion out of global listed equities in 2016 if oil prices stay between $30 and $40 a barrel, after pulling out about half that amount last year, a research organisation said on Monday.

The largest SWFs, accounting for about 89 per cent of managed assets, sold $213.37 billion of listed equities in 2015, the Sovereign Wealth Fund Institute (SWFI) said, after an oil price crash triggered massive fund redemptions and relentless selling of foreign currency reserves by producers. “The era of petrodollar-filled wheelbarrows being dumped into giant vats seems to be numbered,” said the SWFI, whose 2015 figure includes both direct equity stakes and investments made through external fund managers.

Norway, with some $800 billion in its SWF, has said its budget will use 2.8 per cent of the fund in 2016, up from 2.6 per cent in 2015. SWFs control some $7 trillion of assets globally, of which oil and gas producers account for some $4.2 trillion, according to Morgan Stanley. The SWFI says about $2.76 trillion is managed externally.

Asset managers whose businesses are skewed towards SWF mandates have been vocal about redemptions, with Aberdeen, Ashmore and Northern Trust all citing SWFs as one of the reasons for their shrinking asset base.

“These funds were set up for a rainy day and the rainy day has arrived,” Aberdeen Asset Management CEO, Martin Gilbert, said this month, flagging more outflows. But some industry participants dismiss claims that SWFs are behind 2016’s equity market rout.