SOFAZ to invest in China’s market

By: Aynur Jafarova

Azerbaijan’s state oil fund SOFAZ intends to invest in the Chinese market with the government debt securities, SOFAZ told Trend Agency on August 14.

China as the second largest economy in the world remains an attractive market for the growing number of foreign investors. Prospects of the Chinese Yuan as an additional investment currency attract considerable interest of various categories of investors, including sovereign wealth funds.

“SOFAZ has recently applied to the People’s Bank of China to use broad investment opportunities in the Chinese market,” SOFAZ said.

The decision was made after careful evaluation of investments in the context of the overall investment portfolio. Currently the fund is at the stage of negotiation with the Chinese authorities on the approval of the quota. The outcomes of the negotiations will be released after the signing of agreements between Azerbaijan and China.

“SOFAZ intends to invest funds in the Chinese market gradually, starting with government debt securities. In parallel, the fund will study other ways to invest in the China’s financial market,” the fund added.

According to SOFAZ’s investment strategy, up to five percent of the investment portfolio may be invested in stock, up to five percent in real estate and up to five percent in gold.

The investment strategy of the fund is aimed at selection of high quality office and retail properties in the central cities of the world countries with developed and transparent real estate markets.

Earlier SOFAZ purchased Gallery Actor, a mixed-use office and retail complex located on Pushkin Square in Moscow for $133 million, an office complex in London’s West End for £177.35 million and a property in Paris for €135 million, and Pine Avenue Tower A worth $447 million in Seoul.

“This year, the fund has set a goal to diversify the investment portfolio of properties in the direction of the Asian markets. The fund carefully studies conditions and the characteristics of these markets, continues analyzing the investment proposals on the real estate markets of East and South-East Asia, including China,” the fund noted.

SOFAZ, an entity that accumulates and manages Azerbaijan’s oil and gas revenues, was established in 1999 with assets worth $271 million.

The main purposes of the fund are accumulation of funds and placement of assets abroad to minimize negative impacts on economy, prevention of the ‘Dutch disease’, ensuring savings for future generations, and maintaining the current social and economic standards in the country.

SOFAZ assets are placed partly in securities, money market instruments (deposits, bank accounts).

The budget revenues of SOFAZ exceeded 6.493 billion manats, and the budget expenditures amounted to over 5.163 billion manats in the first half of 2014.

Some 35.4 percent of its investment portfolio is concentrated 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.

Since the first quarter of 2012, the fund has started purchasing gold. The amount of the purchased gold stood at 30 tons 175 kg (970,146 ounces) as of July 1.

The assets of SOFAZ increased by 4.86 percent as of July 1, 2014 compared to early 2014 reaching to over $37.622 billion.

The total volume of the fund’s investment portfolio amounted to around $37.55 billion, or 99.8 percent of the total volume of its assets in the reported period.