Saudi Arabia’s stockpile of US Treasuries fell to the lowest level in more than six years, as the kingdom allocates more of its oil wealth to riskier assets.
The Gulf country in June sold more than $3 billion in US government debt, offloading the securities for a third consecutive month to bring its holdings to $108.1 billion, according to Treasury Department data. The neighboring United Arab Emirates sold nearly $4 billion.
The Arab Gulf region’s petrostates are seeking out new avenues for investing to get higher returns in a world where a backlash is building against the hegemony of the US dollar. For Saudi Arabia, whose holdings of Treasuries are down over 41% since early 2020, the choice increasingly fell on assets including investments in Lucid Group Inc., Uber Technologies Inc. and Newcastle United.
The share of Saudi Arabia’s external wealth in risky assets stood at around 40% by the end of 2022, according to Bloomberg Economics. It’s more than doubled since 2016, when then-Deputy Crown Prince Mohammed bin Salman said he’d wanted to invest in sectors other than oil.
What Bloomberg Economics Says...
“Domestically, higher risks mean potential losses for the kingdom. Globally, the re-allocation of Saudi wealth could result in higher US interest rates.”
— Ziad Daoud, chief emerging markets economist. For more click here.
The Saudi sovereign wealth fund’s disclosed holdings of US-traded stocks rose almost 10% in value to about $39 billion in the second quarter, according to regulatory filings on Monday.
Known as the Public Investment Fund, it boosted its stakes in companies including electric vehicle manufacturer Lucid and Chinese e-commerce giant Alibaba Group Holding Ltd.
Sellers, Buyers
Echoing the Treasuries selloff by Gulf states, China dumped $11.3 billion in June to bring its holdings to the lowest level since mid-2009, according to the latest figures released on Tuesday. Japan and the UK were among the biggest buyers of what’s widely perceived as one of the safest assets to own.
Saudi Arabia is the world’s largest oil exporter and a pillar of a petrodollar system established in the 1970s that relies on pricing crude exports in the US currency. While maintaining a peg to the dollar for decades, it’s now also seeking to strengthen its relations with crucial trade partners including China as part of an effort to diversify the economy away from energy.
Higher oil prices and output used to quickly translate into rising foreign reserves for Saudi Arabia. But officials announced a year ago the kingdom planned to hold on to the money and only later decide how to distribute it.
Read: Saudi Oil Cuts Throw Last Year’s Standout Economy Into Slow Lane
It still isn’t clear how Saudi Arabia is allocating the money. Other potential recipients of transfers include the National Development Fund, which has been tasked with investing in developing the kingdom’s infrastructure, and the wealth fund.
This year, the kingdom’s effort to support crude prices with output cuts has left it with far smaller receipts from oil sales abroad. After earning a windfall of nearly $326 billion in 2022, Saudi Arabia is at risk of running a budget deficit again following its first surplus in almost a decade.
Saudi investment of oil revenues into American assets — as well as Riyadh’s oil production and pricing policies and the continued primacy of the dollar — are all part of the ongoing talks between the US and Saudi Arabia, analysts with knowledge of these discussions have said.
The focus of the discussions is on reaching a formal defense and security pact between the two countries and normalization of ties between the kingdom and Israel.
--With assistance from Sam Dagher.
(Updates with Saudi wealth fund stock holdings starting in fifth paragraph, US talks in final two.)
