Conquer The Wallstreet !!!: Cash-rich sovereign wealth funds from Asia have been burnt

Market is still in the uncertainty condition as long as there are large amount of loans which have been unloading from financial institutions and we call it as deflation. While investors become more panic and redeem their funds. Force liquidation had dropped down markets in the two consecutive days last week, November 5th & 6th, see the following chart.

Chart courtesy of Stockchart
The force selling was driven by Downgrading Ambac on Wednesday, November 5. MBIA insured more than $1 trillion of debt as of Dec. 31, according to the company. Ambac insured $524 billion of bonds as of April.

If 10% of those bonds default are uninsured, there will be $150 billion dries up. But if that $150 billion is being used as regulatory capital or margin deposits by leveraged entities, and can't be replaced under current market conditions, it could provoke the liquidation sale of much larger amounts of assets.

This event is like what have been occurred on the late week in last October when investors pulled $9.2 billion from stock mutual funds.

This force liquidation was signed by rising USD and Japanese Yen while commodities plunge, including gold as investment hedge (see: This is de-leveraging. This is a forced liquidation). It had spread around financial system in the world. No more countries will resist to the current crisis, including China which has spectacular economic growth year on year because China and Japan export depends mostly on US and Europe market.

Now there is $50 trillion worth of notional value in credit default swaps insuring only $5 trillion worth of bonds. How could you end up this monster of financial disaster?

Since last year, financial institutions hit by the unfolding slump in the US housing market have sought and received billions of dollars in fresh capital from sovereign wealth funds created to invest national savings and surpluses fed by crude-oil windfalls in the Gulf and rapid industrialization in Asia.

Now, cash-rich sovereign wealth funds from Asia and the Middle East have been burnt and may be turning cautious after getting burnt by investments in Western firms hit by the current financial turmoil. They put a lot of capital into financial institutions earlier on and they lost a lot of money, according to Minton-Beddoes, a former economist with IMF.

The IMF has estimated that sovereign wealth funds collectively hold total assets of between 1.9 trillion and 2.8 trillion dollars and could be worth 12 trillion dollars by 2012, while the UN Conference on Trade and Development puts their current holdings at about 5.0 trillion dollars.

Right now there is a lot of fear in the marketplace from all investors... Sovereign wealth funds are not interested in making more large investments because of how their previous investments have turned out.

For example, Singapore was among the most prominent investors with its two main funds, Temasek Holdings and the Government of Singapore Investment Corp (GIC), emerging as sought-after sources of capital by ailing Western financial firms.

Temasek invested 8.3 billion US dollars into Merrill Lynch, which was later acquired by Bank of America in an all-stock deal worth 50 billion dollars, while GIC pumped billions into Citigroup and Swiss banking behemoth UBS.

A worker cleans the water fountain pond in front of the Government
of Singapore Investment Corp building in October. Cash-rich sovereign
wealth funds from Asia and the Middle East may be turning cautious after
getting burnt by investments in Western firms hit by the current financial turmoil,
analysts said. AFP PHOTO/ROSLAN RAHMAN
The state-owned Kuwait Investment Authority injected a total of 5.0 billion dollars in Citigroup and Merrill Lynch in January this year.

The Abu Dhabi Investment Authority, controlled by the largest member of the United Arab Emirates, poured 7.52 billion dollars into Citigroup late last year.

Analysts said sovereign wealth funds from Asia and the Middle East would continue to be major financiers, but any potential partnerships would be carefully weighed before the cheque book is taken out.

ETFs/Stocks :

iShares MSCI Emerging Markets Indx (ETF)   EEM 24.64   +1.85 (8.12%)
UltraShort MSCI Emerging Markets ProShares EEV 85.84  -16.41 (-16.05%)

Brazil, Russia, India and China had agreed to boost trade and capital flow

Sources :

Sovereign wealth funds turning cautious: analysts

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