SOFAZ exploring opportunities to increase investment in China

Economy Materials 11 December 2015 18:06 (UTC +04:00)

Baku, Azerbaijan, Dec. 11

By Maksim Tsurkov - Trend:

State Oil Fund of Azerbaijan (SOFAZ) is studying the possibilities of increasing investment in China, the fund told Trend Dec.11.

"The decision of the IMF (International Monetary Fund) to confirm the status of the RMB (the renminbi - the official currency of China) as a reserve currency and its inclusion in the SDR (Special Drawing Rights) basket is positively estimated for China's economy and the yuan in the long term," said the fund. "It is expected that the decision, which will come into force starting from October 1, 2016, will become the cause for the increased use of the yuan at the international level and the increase of significance of the currency."

"In this regard, SOFAZ as part of its investment policy is exploring opportunities for further investment in the Chinese market in details," according to the fund.

The oil fund said that in the future, based on market conditions, along with increased investment in government bonds of China, SOFAZ may consider investing in other financial instruments, including stocks.

SOFAZ named commitment to provide high diversification of its currency basket and the desire to invest in the national currency of the second largest economy in the world, which will become one of reserve world currencies in the future, the main aims of starting to invest in China in the amount of three billion yuans starting from July 1, 2015 after receiving a license from the central bank of this country.

In accordance with the "Rules on management of foreign currency assets of the State Oil Fund of the Republic of Azerbaijan", funds in SOFAZ's investment portfolio can be invested in securities that are denominated in currencies of G7 countries (USA, Germany, Great Britain and Kingdom Northern Ireland, France, Italy, Canada and Japan), European Monetary Union member countries, Russia and Turkey, as well as the countries with a long-term credit rating not less than "A" (Standard & Poors, Fitch) or "A2" (Moody's).

As of October 1, 2015, SOFAZ assets reduced by 6.38 percent compared to early 2015 ($37.1 billion) and were estimated at $34.74 billion.

Some 74.1 percent of the investment portfolio of the State Oil Fund of Azerbaijan (SOFAZ) was invested in financial tools for up to five years in January-September 2015.

As of October 1, 2015, the total volume of SOFAZ investment portfolio is $34.6 billion or 99.6 percent of the total volume of assets.

Around 30.8 percent of SOFAZ investment portfolio is placed in securities for a one-year period, 28.3 percent for one to three years, 15 percent for three to five years and 9.2 percent for more than five years. Some 16.7 percent is kept in real estate, assets and gold.

SOFAZ assets are partially placed in securities, tools of the monetary market such as deposits and bank accounts.

Some 81.6 percent of the investment portfolio is placed in bonds. Around 9.96 percent accounted for the securities with 'AAA' ratings, 28.26 percent in 'AA', 38.19 percent in 'A', and 23.59 percent in 'BBB'. SOFAZ assets cannot be placed in securities with a lesser investment rating.

Currently, 12.5 percent of SOFAZ investment portfolio is placed in bonds of agencies and international organizations, 8.1 percent - sovereign debt securities, 19.2 percent - financial bonds, 44 percent - corporate bonds, 9.3 percent - short term commercial securities, 1.7 percent - guaranteed bonds.

Around 5.2 percent of the investment portfolio is placed in deposits and monetary market tools, gold - 3.2 percent, real estate- 4.3 percent, assets - 7 percent, investments in the projects - 2.2 percent.

SOFAZ was established in 1999 with assets of $271 million.

Based on SOFAZ's regulations, its funds may be used for the construction and reconstruction of strategically important infrastructure facilities, as well as solving important national problems.

The main goals of the State Oil Fund include: accumulation of resources and the placement of the fund's assets abroad in order to minimize the negative affect on the economy, the prevention of "Dutch disease" to some extent, promotion of resource accumulation for future generations and support of current social and economic processes in Azerbaijan.

Follow the author on Twitter: @MaksimTsurkov