Most Aggressive Buyers of Stocks? Foreign Governments:
Chris Mayer / July 20, 2007

From today’s Wall Street Journal: “Foreign governments, flush with cash and no longer content with the meager returns to be had on safe but low-yielding investments like Treasuries, are becoming increasingly aggressive players on the equity front.”

In my July issue of Capital & Crisis, I wrote about these so-called new sovereign wealth funds and how they could become the most important buyers of securities. There are trillions of dollars of purchasing power in these funds. These government-controlled investors hail from such countries as China, Singapore, Saudi Arabia, UAE and more.

China made its first equity purchase in May with a stake in the U.S. buyout group, Blackstone. Now, funds controlled by China and Singapore will invest $18 billion for a stake in the British bank Barclays. Last week, funds controlled by Qatar made a $21 billion bid to takeover the British supermarket chain J. Sainsbury.

"There has been a fairly spectacular increase in financial assets under management by governments," said Dominic Wilson, director of global macro and markets research at Goldman Sachs Group. "The scale of the issues around such investment is different than anything the world has ever seen. Neither [governments] nor the markets know exactly what they should do with the assets."

We’re finding out, at least, that they are interested in buying businesses. Given the amount of buying power behind these funds, they could bid up the prices for takeovers beyond already historically high prices. "We have entered a whole new world," says Jim O'Neill, head of Global Economic Research for Goldman Sachs International in London. — Chris Mayer

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