ADIA Values Emerging Equities

Abu Dhabi’s sovereign wealth fund expects emerging market stocks to outperform in the long-term.

Abu Dhabi Investment Authority (ADIA), the cash-rich emirate’s sovereign wealth fund, expects emerging market stocks to outperform in the long-term and said it took a “selective” approach in deploying money at its fixed income unit in 2011.

ADIA, whose assets range from Citigroup bonds to a stake in Britain’s Gatwick airport, said high volatility in emerging market stocks had more to do with increased risk aversion among investors than fundamental concerns.

“Looking forward, it is likely that such volatility will decline over time as investors gain confidence in the ability of emerging markets to manage the various challenges they face and begin to focus more on economic fundamentals,” the fund said in its 2011 review.

The sovereign wealth fund, among the world’s largest, expects central banks in large emerging economies such as China and India to use monetary policy to thwart inflationary pressures, a factor it thinks will improve market valuations.

ADIA does not disclose its assets but analysts estimate it has $400-$800 billion under management.

MSCI’s emerging equities index, the market benchmark, has been relatively flat in 2012 after falling 20.4 per cent last year on concerns global growth would slow, mainly due to the debt crisis in Europe.

ADIA said its fixed income department had operated in a challenging environment in 2011, and had readjusted its portfolio positioning to counter the sell-off in developed markets. It did not disclose whether it had reduced its European exposure as the debt crisis in the region rumbled on.

“It (the fixed income department) took a selective approach in deploying capital by giving careful consideration to the increased level of risks in government bond markets,” ADIA said.
Other sovereign wealth funds have been reviewing their European holdings in light of the crisis, now in its third year.

China’s $410 billion fund China Investment Corp has cut its stock and bond investments in Europe because it sees rising risks of a Eurozone breakup, the fund’s chairman was quoted as saying in an interview published earlier in June.

ADIA has been beefing up its private equity department and hired Christophe Florin to head its emerging markets private equity team in May.