Sovereign Wealth Funds: An opportunity or a new cold war

It has been reported again and again that the sovereign wealth funds are increasingly driven by political motives rather than commercial motives. Morgan Stanley did a study recently (“How big could sovereign wealth funds be by 2015?”) and reported that SWFs could turn absolutely massive and rise from the current level of $2.5 trillion to $12 trillion by 2015, with an annual rise of $500 billion. The report went on to suggest how this would affect fundamentally the risky assets trade and give rise to “financial protectionism.”

On one hand China's SWF buying stake in Blackstone was seen as politically motivated (obviously US thinks so) and on the same hand leading banks based in US such as Merrill Lynch, JP Morgan and Morgan Stanley are rushing to form SWF teams to advise and to cash in on the growing investment wave of government companies - The Financial Times (September 2).

Singapore SWF is well known to make investments abroad and it seems that other countries will soon follow suit given low returns from US treasuries in which a majority of SWF presently invest. It will interesting to see how the developed countries react to the SWF from developing countries and what type of protectionist measures shall be taken.

In the mean while, China's CITIC Bank Corp Ltd is bidding for a stake in Bear Stearns Cos, a senior Chinese regulator said, in the first official confirmation of media reports that the state-run bank was a potential suitor for the smallest of Wall Street's five big independent brokerages.