Economy Wealth Management

Gold is SOFAZ refuge in world gripped by turmoil

Gold - Credit Bloomberg

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The State Oil Fund of the Republic of Azerbaijan (SOFAZ) is planning to almost double its holdings of the precious metal in 2019 to 100 tonnes after resuming purchases in 2018 following a five-year break.

Monday 04, February 2019

(Bloomberg) --For Azerbaijan’s sovereign wealth fund, nothing beats the safety of gold in a world increasingly vulnerable to trade disputes and geopolitical risk.

By contrast, it’s steering clear of larger bets on bonds and especially equities, an approach that Executive Director Shahmar Movsumov says allowed the fund to avoid losses last year.

 “We would want to have something that is not someone else’s credit risk,” Movsumov said in an interview in the capital, Baku, on Friday. “In a world where you see the changes in geopolitics, changes in reserve currencies, changes in the dynamics between superpowers and their imminent impact on the financial sector, you want to be on the safe side.”

As a traditional haven in times of turmoil, bullion is seeing a resurgence of demand after the US Federal Reserve signalled that interest-rate increases could be off the table for now. Signs of a global slowdown and the prolonged US-China trade war have added uncertainty to financial markets. With sentiment toward gold brightening since mid-October, it finished last year with its best quarter since March 2017 as stock-market volatility and a partial US government shutdown also spurred demand.

Movsumov said SOFAZ will buy even more gold if oil prices are higher than the government’s expectation for $60 per barrel this year. If crude falls to $50, the fund will buy less. The difference will be “marginal. We’re talking about plus or minus five tonnes,” he said. SOFAZ, whose holdings now exceed 80 per cent of Azerbaijan’s gross domestic product, was established in 1999 to manage oil and natural-gas income of the third-largest crude producer in the former Soviet Union.

The fund expects its assets to rise by $2.3 billion and hit a record high of $40 billion this year, Movsumov said. In 2012, SOFAZ started to diversify by adding gold, equities and real estate. While the regulations allowed the fund to invest as much as 25 per cent of its holdings in equities last year, it opted to keep those investments as low as 13 per cent to 14 per cent. “We decided that it was not the right time to increase investment in equities, and we were right,” Movsumov said.

SOFAZ has had more success investing in real estate, which has generated a “very steady income,” Movsumov said. It’s bought commercial real estate in London, Paris, Milan, Moscow, Seoul and Tokyo, and is still looking at markets in Europe, North America and Asia for more opportunities.

 There is more interest in Asia because of better prospects for economic growth, he said. While the fund has carried out direct acquisitions of real estate in previous years, nowadays it prefers investments via real estate funds because direct acquisitions requires more resources, Movsumov said. All of the gold Sofaz buys overseas is transported to Azerbaijan to be stored in its new building on Baku’s Heydar Aliyev Avenue.

TAGS : Azerbaijan, SOFAZ, Oil, Gold, US-China trade war

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