Macroeconomic Shocks of 2022 and Sovereign Funds

127
DOI: 10.20542/0131-2227-2023-67-4-17-28
EDN: VQVTBW
Moscow State Institute of International Relations, The Ministry of Foreign Affairs of the Russian Federation (MGIMO University), 76, Vernadskogo Prosp., Moscow, 119454, Russian Federation.
S. Chebanov, scheb@imemo.ru
Primakov National Research Institute of World Economy and International Relations, Russian Academy of Sciences (IMEMO), 23, Profsoyuznaya Str., Moscow, 117997, Russian Federation.

Received 30.01.2023. Revised 03.02.2023. Accepted 06.02.2023.

Abstract. In 2022, instead of getting back to pre-pandemic “new normal” the world entered into another period of severe economic and geopolitical turbulences. In terms of macroeconomics, the most evident and painful was the hike of hydrocarbons’ and food prices. This drove inflation rates to the levels not seen in recent 40 years. In attempts to cool down underlying inflationary pressures the monetary authorities of many countries had to stop the policies of quantitative easing (QE) and started to raise basic interest rates. In this environment the governments, businesses and families are facing massive debt problems. The main stock market indices crushed deeply and simultaneously in 2002 which meant substantial depreciation of assets. All these macroeconomic shocks seriously affected the performance of sovereign wealth funds which currently present a solid and increasingly influential group of global assets’ holders and managers. The steady growth of the value of their assets under management (AUM) was interrupted last year. According to preliminary analysis, the total losses of AUM can reach circa 1 Trillion US$. Just one fund – Norway’s Government Pension Fund Global (GPFG) – reported a depreciation of its assets by as much as 165 Billion US$ as of end‑2022. This is an amount comparable to the GDP of a mid-size country, for instance Ukraine before current military conflict. However, for Norway’s GPFG and similar state-owned investors (SOIs) of other countries such losses were not critical. SWFs are, basically, “tolerant investors” with very long view on value creation and operational planning, so they easily absorb paper losses. Simultaneously, the huge SWFs of oil and gas exporting Gulf countries enjoyed the hike of hydrocarbons’ international prices and hurried up to invest massive influx of unexpected revenues into depreciated assets in troubled economies of the USA and Europe. More countries tended to expand the mandates of their sovereign funds beyond traditional stabilization and saving functions. Strategic development funds became increasingly demanded by the governments and may appear even at the supranational level (the projected European Sovereignty Fund). So far, it may be concluded that in general macroeconomic shocks of 2002 did not undermine the positions of SWFs as strong and resource-rich global investors. On the contrary, it looks like that their role as an efficient tool of governmental policies of offsetting and preventing multiple market failures is getting to be further strengthened in upcoming harsh times.

Keywords: macroeconomic shocks, geopolitical conflicts, sovereign wealth funds, international economy, investment, global assets, stock markets


REFERENCES

1. Glenton H.W. The World’s Largest Sovereign Wealth Fund Loses $174 Billion in the First Half, Cites Inflation and War in Europe. CNBC, 17.08.2022. Available at: https://www.cnbc.com/2022/08/17/norways-sovereign-wealth-fund-loses-174-billion-in-first-half.html (accessed 19.10.2022).

2. Zhang H. Dealmaking at Sovereign Funds Slows to Levels Last Seen during Early Days of Pandemic. Institutional Investor, 02.05.2022. Available at: https://www.institutionalinvestor.com/article/b1xvz0555bj5ms/Dealmaking-at-Sovereign-Funds-Slows-to-Levels-Last-Seen-During-Early-Days-of-Pandemic (accessed 19.10.2022).

3. López D. Will Sovereign Wealth Funds Fill the FDI Gap? FDI Intelligence, 12.12.2019. Available at: https://www.fdiintelligence.com/content/comment/will-sovereign-wealth-funds-fill-the-fdi-gap-75974 (accessed 10.12.2021).

4. Ma W.W. The Hunt for Tech Unicorns: How Sovereign Funds Accelerate the Digital Economy. Digital Frontiers, 17.10.2021. Available at: https://www.orfonline.org/expert-speak/hunt-for-tech-unicorns/ (accessed 26.10.2022).

5. Downs P., Ma W.W. The Hunt for Unicorns: How Sovereign Funds Are Reshaping Investment in the Digital Economy. New York, Wiley, 2020. 416 p.

6. Strelets I.A., Chebanov S.V. Financing of Innovations and Sovereign Funds. World Eñonomy and International Relations, 2022, vol. 66, no. 3, pp. 63-72. (In Russ.) Available at: https://doi.org/10.20542/0131-2227-2022-66-3-63-72

7. Breton T. A European Sovereignty Fund for an Industry “Made in Europe”. Brussels, European Commission, 15.09.2022. 2 p.


SOURCES

1. The Global Risks Report 2023. Cologny/Geneva, World Economic Forum, January 2023. 98 p.

2. Global Debt Monitor: Debt in the Time of Geopolitics. Washington, Institute of International Finance, May 2022. Available at: https://www.iif.com/Key-Topics/Debt/Monitors (accessed 10.10.2022).

3. BlackRock – the World’s Largest Asset Manager – Says Central Banks Are Deliberately Causing Recessions and Warns of a Downturn unlike Any Other. Yahoo! Finance, 18.01.2023. Available at: https://finance.yahoo.com/news/blackrock-world-largest-asset-manager-223000827.html (accessed 20.01.2023).

4. Federal Reserve History. The Great Moderation 1982–2007. Available at: https://www.federalreservehistory.org/essays/great-moderation (accessed 10.01.2023).

5. BlackRock 2023 Global Outlook. New York, BlackRock Investment Institute, January 2023. 16 p. Available at: https://www.blackrock.com/corporate/literature/whitepaper/bii-global-outlook-2023.pdf (accessed 20.01.2023).

6. State-Owned Investors 3.0. 2022 Annual Report. New York, London, Global SWF, 2022. 52 p.

7. State-Owned Investors in a Multipolar World. 2023 Annual Report. New York, London, Global SWF, 2023. 66 p.

8. Gulf Sovereign Wealth Funds Rethink Fixed Income as Fed Raises Rates. SWF Institute, 19.06.2022. Available at: https://www.swfinstitute.org/news/93089/gulf-sovereign-wealth-funds-rethink-fixed-income-as-fed-raises-rates (accessed 01.11.2022).

9. What Is the National Debt? Washington, US Treasury, 2023. Available at: https://fiscaldata.treasury.gov/americas-finance-guide/national-debt/ (accessed 30.01.2023).

10. The Future of the Monetary System. Leading Perspectives to Navigate the Future. Zurich, Credit Suisse Research Institute, January 2023. 44 p.

11. Global Asset Owners Sell off Treasuries. SWF Institute, 02.05.2022. Available at: https://www.swfinstitute.org/news/92425/global-asset-owners-sell-off-bonds-waiting-for-higher-interest-rates (accessed 30.10.2022).

12. Negative Return in the Third Quarter. Oslo, NBIM, 28.10.2022. Available at: https://www.nbim.no/en/the-fund/news-list/2022/negative-return-in-the-third-quarter (accessed 10.01.2023).

13. Norway’s Sovereign Wealth Fund Had Its Worst Year in Bonds on Record. SWF Institute, 31.01.2023. Available at: https://www.swfinstitute.org/news/95599/norways-sovereign-wealth-fund-had-a-negative-year-losing-14-1 (accessed 31.01.2023).

14. Government Pension Fund Global. Half-year Report 2022. Oslo, NBIM, August 2022. 41 p. Available at: https://www.nbim.no/contentassets/e49be8b7b9764b929bcdd21f4176f2bb/gpfg-half-year-report_2022.pdf (accessed 12.12.2022).

15. Ukraine: Gross Domestic Product (GDP) from 1996 to 2021. Statista, 2023. Available at: https://www.statista.com/statistics/296140/ukraine-gross-domestic-product/ (accessed 20.01.2023).

16. Norway Says Its Sovereign Fund Will Divest from Russia. US News & World Report, 27.02.2022. Available at: https://money.usnews.com/investing/news/articles/2022-02-27/norway-says-its-sovereign-fund-will-divest-from-russia (accessed 14.03.2022).

17. Norway Prime-Minister Says Its Sovereign Fund Will Divest from Russia. SWF Institute, 27.02.2022. Available at: https://www.swfinstitute.org/news/91463/norway-prime-minister-says-its-sovereign-wealth-fund-will-divest-from-russia (accessed 15.03.2022).

18. Norwegian Krone to US Dollar Spot Exchange Rates for 2022. Available at: https://www.exchangerates.org.uk/NOK-USD-spot-exchange-rates-history-2022.html (accessed 15.10.2022).

19. Norges Bank Investment Management Strategy 25. Oslo, Norges Bank, December 2022. 20 p. Available at: https://www.nbim.no/contentassets/71d5f5ade5fb4717acdedb412f30fdac/gpfg-strategy-25.pdf (accessed 12.12.2022).

20. Commission President: EU Sovereignty Fund Will Be Proposed in Summer. Euractiv, 15.12.2022. Available at: https://www.euractiv.com/section/economy-jobs/news/commission-president-eu-sovereignty-fund-will-be-proposed-in-summer/ (accessed 23.01.2023).

21. Could There Be a European Super Sovereign Wealth Fund? SWF Institute, 19.01.2023. Available at: https://www.swfinstitute.org/news/95489/could-there-be-a-european-super-sovereign-wealth-fund (accessed 23.01.2023).


For citation:
Strelets I., Chebanov S. Macroeconomic Shocks of 2022 and Sovereign Funds. World Eñonomy and International Relations, 2023, vol. 67, no. 4, pp. 17-28. https://doi.org/10.20542/0131-2227-2023-67-4-17-28 EDN: VQVTBW



Comments (0)

No comments

Add comment







Indexed

 

 

 

 

Dear authors! Please note that in the VAK List of peer-reviewed scientific journals, in which the main scientific results of dissertations for the degree of candidate and doctor of sciences should be published for the “MEMO Journal” the following specialties are recorded:
economic sciences:
5.2.5. World Economy.
5.2.1. Economic Theory
5.2.3. Regional and Branch Economics
political sciences:
5.5.4. International Relations
5.5.1. History and Theory of Politics
5.5.2. Political Institutions, Processes, Technologies

 

Current Issue
2025, vol. 69, No. 3
Topical Themes of the Issue:
  • Interference Debate within the UN: Record of Systematic Study 
  • Problems and Ways of Russia’s Access to Non-CIS Countries Product Markets
  • The Integration in Central Asia: Restrictions and Perspectives
Announcement

Dear authors of the journal!

Please note that the author's copies of the issues in which your texts are published are kept in the editorial office for no more than one year. After this period expires, the editorial office has the right to dispose of unclaimed copies at its own discretion.

 

Submit an Article
INVITATION FOR PUBLICATION
The Editorial Board invites authors to write analytical articles on the following topics:
  • changes in the processes of globalization in modern conditions
  • formation of the new world order
  • shifts in civilization at the stage of transition to a digital society

The editors are also interested in publishing synthesis articles / scientific reviews revealing the main trends in the development of certain regions of the world - Latin America, Africa, South Asia, etc.