By Marc Jones
LONDON, July 10 (Reuters) – More countries are repatriating gold reserves as a safeguard against the kind of sanctions the West is imposing on Russia, according to an Invesco survey of central banks and sovereign wealth funds released on Monday.
The slump in financial markets over the past year has caused widespread losses for Treasury managers who are “fundamentally” rethinking their strategies, confident that higher inflation and geopolitical tensions will persist.
Over 85% of the 85 sovereign wealth funds and 57 central banks that took part in the annual Invesco Global Sovereign Asset Management Study believe inflation will now be higher in the coming decade than it was last.
Gold and emerging market debt are seen as good opportunities in this environment, but the West’s freeze of almost half of Russia’s $640 billion in gold and foreign exchange reserves in response to last year’s invasion of Ukraine also seems like a shift to have triggered.
The poll found that a “significant proportion” of central banks were concerned about the precedent being set. Almost 60% of respondents said it has made gold more attractive, while 68% are keeping their reserves at home, compared to 50% in 2020.
A central bank, quoted anonymously, said: “We kept it (gold) in London … but now we have transferred it back to our own country to hold as a safe haven and to keep safe.”
Rod Ringrow, Invesco’s head of official institutions, who oversaw the report, said it was a widely held view.
“‘If it’s my gold, then I want it in my country’ (was) the mantra we’ve seen for the past year or so,” he said.
diversify
Geopolitical concerns coupled with emerging market opportunities are also encouraging some central banks to diversify their currencies away from the dollar.
A growing 7% believe that rising US debt is also negative for the greenback, although most still see no alternative to being the world’s reserve currency. Those who see the Chinese yuan as a potential competitor fell to 18% from 29% last year.
Almost 80% of the 142 institutions surveyed see geopolitical tensions as the biggest risk over the next decade, while 83% say inflation over the next 12 months is a concern.
Infrastructure is seen as the most attractive asset class today, particularly renewable energy generation projects.
Concerns about China mean India remains one of the most attractive countries to invest in for the second year running amid the “near-shoring” trend, with companies building factories closer to where they sell their products, companies like Mexico , Indonesia and other countries are boosting Brazil.
Alongside China, the UK and Italy are also seen as less attractive, while rising interest rates coupled with the home working and online shopping habit established during the COVID-19 outbreak has meant real estate is now the least attractive private sector are assets.
Ringrow said the wealth funds that did better over the past year were those that recognized the risks of inflated asset prices and are willing to make significant portfolio changes. It would be the same in the future.
“The funds and central banks are now trying to get a handle on higher inflation,” he said. “It’s a big sea change.”
(Reporting by Marc Jones; Editing by Mike Harrison)
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