[A-List] Saudis disinvest

["Keaney Michael" <Michael.Keaney@xxxxxx>]

Of the newspapers I have scanned today only the FT seems to be following
this story. Nevertheless it is surely among the most important economic
developments of the moment and deserves our close attention. Thanks to
Stan for kicking it off on the A-list.



Flight of Saudi funds from US raises concern
By James Politi in London and Julie Earle in New York
Financial Times: August 22 2002

Moves by Saudi investors to shift tens of billions of dollars out of the
US have added to market concerns that global fund managers are becoming
increasingly disenchanted with the US, analysts said on Wednesday.

Economists and bond strategists were on Wednesday considering the impact
of Saudi disinvestment on the dollar and US Treasury prices, following
an FT report that as much $200bn of Saudi money may have left the US in
the last few months amid deteriorating bilateral relations.

"Watch for Middle Eastern asset switches out of US dollars into the
euro," UBS Warburg's London-based fixed-income team advised in its daily
note. "If a trickle becomes a flood, it could force the spread [of US
Treasuries to German bonds] wider in double-quick time."

David Brown, chief European economist at Bear Stearns, said if Saudi
holdings in the US were cut drastically and in a very short time, "there
could be an influence on the dollar".

Most banks, however, emphasised the relatively low level of Saudi
holdings of US assets, between $400bn and $600bn according to one
estimate, or equivalent to less than 1 per cent of total outstanding US
assets.

But Mr Brown said the question was "whether any Saudi disinvestment is
isolated, or part of a global move to reduce US exposure". The latest
figures on inflows to the US suggest a broader move away from American
investments.

By May this year, the 12-month rolling sum of net foreign buying of US
assets was down 14 per cent to $450bn, from a peak above $500bn late
last year, according to UBS Warburg.

Medlej al-Medlej, executive director of the US Saudia Arabia Business
Council in Washington, whose members include big oil companies like
Exxon Mobil as well as banks, said: "We are hearing that the US is no
longer the best place for Saudis to send their money. There is a growing
impression that the US is no longer a safe haven for investment and we
agree there must be some investors who are pulling out of the US."

Mr al-Medlej said there was a perception that since the September 11
terrorist attacks, the US was no longer a safe haven. "I honestly don't
believe that the money moving from the US has anything to do with
politics, but with security, in terms of the trillion-dollar lawsuits
filed against Saudis after September 11 [by victims' relatives]." Mr
al-Medlej said there was "a huge amount" of Saudi money in the US,
mainly in equities and property. "We hear as much as $600bn to $800bn,
and I don't think a large portion of that is leaving."

But not everyone agreed there had been multibillion outflows of Saudi
money. Peter Scaturro, chief executive officer of Citigroup private
bank, said his company's relationship with Saudi investors had not
changed. "We are not seeing any real change in clients in the Middle
East. We are in constant dialogue with them."