Azerbaijan’s oil funds turning into Chinese Yuan

By: Gulgiz Dadashova

Azerbaijan’s state oil fund SOFAZ which is in charge of accumulating and managing the country’s oil and gas revenues have taken some measures to include Yuan in its currency portfolio.

SOFAZ Deputy Executive Director Israfil Mammadov said the fund has appealed to the People’s Bank of China to obtain quotes on indirect investment in the Chinese yuan onshore market with a view to diversify its investment portfolio.

The fund, established in 1999 aimed at transforming rising hydrocarbon reserves into financial assets, started investing in new asset classes such as equities, real estate, and gold, as well as diversifying its currency portfolio toward the Turkish lira, Russian ruble, and Australian dollar, from 2012.

“We intend to invest gradually, initially through the Chinese government securities. We will consider other investment tools available on the Chinese financial markets with the growth of our experiences,” Mammadov told local media.

Mammadov further said the decision was made ​​after a careful analysis of the fund’s portfolio with a view to use the opportunities available in the Chinese markets.

“SOFAZ is in talks with the Chinese authorities. The approved quota will be announced after the two institutions sign an agreement, ” he said.

Currently, the currency structure of the SOFAZ investment portfolio is as follows: 51.7 percent of its total investment portfolio was concentrated in U.S. dollars (around $19.4 billion), 35.4 percent of its investment portfolio in euro (9.74 billion euro), 5.3 percent in British pounds (1.17 billion pounds), 1.2 percent in Turkish lira, 0.5 percent in Australian dollars, 1.3 percent in Russian rubles, and 1.2 percent in Korean Won.

The remaining part of the portfolio (3.4 percent, or about $1.3 million) is concentrated in gold, which the fund began to purchase since the first quarter of 2012. The amount of the purchased gold stood at 30 tons 175 kg (970,146 ounces) as of July 1.

According to SOFAZ’s investment strategy, up to five percent of its investment portfolio may be placed in stocks, up to five percent in real estate and five percent in gold.

The assets of SOFAZ, that hit $37.622 billion as of July 1 , 2014, are placed partly in securities, money market instruments (deposits, bank accounts).

The map of the fund’s assets is as follow: 55.18 percent of assets was invested in the European countries, 19.56 percent in North America, 12.33 percent in the Asia-Pacific region, 1.05 percent in the Middle East, 5.03 percent in South America, 6.84 percent in international financial institutions, and 0.01 percent in Africa.

SOFAZ earlier announced that it analyzed opportunities for investment in East and Southeast Asia, conducted the necessary evaluations of investment prospects in the respective countries, and targeted the Asian market as the most promising destination for real estate investment.

The main goals of SOFAZ include accumulation of resources and placement of the Fund’s assets abroad in order to minimize the negative affects on economy, the prevention of ‘Dutch disease’ to some extent, promotion of resource accumulation for future generations and support of current social and economic processes in Azerbaijan.