As Marketfield Asset Management CEO Michael Shaoul writes, this reduces its rolling 12 month holdings by $115.2 billion, outpacing Saudi Arabia’s record pace of accumulation in 2012. Certainly, the decline has only put holdings back to their August 2012 levels, double 2007 levels, but Shaoul writes that the speed of the decline is meaningful, as it “indicates a degree of duress.”
Moreover, this December data doesn’t cover the latest oil selloff.
More detail from his note:
Our concern is not whether Saudi Arabia can “afford” to run down its foreign asset holdings (it clearly can, since even the current pace could be absorbed for two or three years and still leave a large reserve holding), but what the effect of a $230 bln swing in its funding position since 2012 means for global asset markets given that it comes on top of a much larger swing by China.We view Saudi Arabia as the second largest contributor to QT (Quantitative Tightening – a central bank divesting assets) and we suspect that a good deal of the liquidation has taken place in actual credit and equity markets rather than in treasuries (there is no transparency in the data so this is mere supposition on our part).The iShares MSCI Saudi Arabia Capped ETF (KSA) is up 3.4% in recent trading, the WisdomTree Middle East Dividend Fund (GULF) is up 2.8% and The Market Vectors Gulf States Index ETF (MES) is up 3.4%.
Review: Emerging Market Formulations & Research Unit, Flagship Records.
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