SAFE as stocks

19 June 2014 By Martin Hutchinson, Richard Beales Follow @richardbeales1

Official lenders flush with foreign reserves are diversifying into equities, a study said this week. Even a global total of, say, $500 bln would be just a fraction of world market cap of $64 trln. But it’s enough to affect prices – and comes from investors with atypical goals.

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Central banks around the world are buying increasing volumes of stocks, according to the Official Monetary and Financial Institutions Forum (OMFIF), which launched a new report, Global Public Investor 2014, on June 17. The report identified $13.2 trillion in assets held by central banks, out of a total of $29.1 trillion held by 400 public-sector institutions, a group that also includes pension funds and sovereign funds.

According to the report, China’s State Administration of Foreign Exchange has, “on the informal assessment of well-informed officials,” become “the world’s largest public sector holder of equities.”

At June 12, the Bank of Japan held 1.4 trillion yen ($14 billion) of common stocks, 3 trillion yen of stock-based exchange-traded funds and 150 billion yen of real-estate investment trusts. At June 10, 2009, the Band of Japan held 1.1 trillion yen of common stocks and ETFs and no REITs.

Of the Swiss National Bank’s $480 billion of assets at Dec. 31, 15 percent or about $72 billion was held in equities. In 2009, only 7.5 percent of reserves of around $120 billion was in stocks.

The U.S. Federal Reserve system is not allowed to invest in equities, and the Russian central bank and several others do not do so as far as can be ascertained from public information.

The Saudi Arabian Monetary Agency has $676 billion in assets, according to OMFIF, and invests some in foreign equities, but does not disclose how much.

According to a database maintained by the International Monetary Fund, government holdings of foreign exchange totaled $11.7 trillion in December, up 6.6 percent on the year, having risen at 14 percent per annum since December 1998, when they totaled $1.6 trillion.

The World Federation of Exchanges calculates that the total market capitalization of the world’s stock markets was $64 trillion at the end of 2013, up 17 percent.

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