ET Intelligence Group: The decision of Norway’s sovereign wealth fund (SWF) to reduce exposure to emerging market (EM) bonds may shrink their depth especially if other SWFs follow suit. Norges Bank, the world’s largest sovereign wealth fund, has assets under management (AUM) worth $1trillion. Currently, it has a higher exposure to EMs, including South Korea, Mexico followed by Brazil, Indonesia, South Africa and India. Its decision to cut debt holdings in emerging markets is expected to result in a $12-billion outflow from these markets.
The rationale for cutting the EM exposure is the rising correlation between the returns of emerging and developed market bonds, which reduces the excess return from EM investment after considering the currency fluctuations.
Foreign funds have AUM of Rs 4.1 trillion ($59 billion) in the Indian debt market, according to NSDL data. Sovereign wealth funds account for around Rs 18,868 crore, or nearly 5 per cent, of the total foreign debt AUM in India. Of this, over 55 per cent is held by Norges Bank.
