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SOFAZ to cut investing in shares on U.S. stock markets

20 November 2015 15:42 (UTC+04:00)
SOFAZ to cut investing in shares on U.S. stock markets

By Aynur Karimova

Azerbaijan's state oil fund SOFAZ, an entity that accumulates and manages the country’s oil and gas revenues, plans to reduce investing in shares on the U.S. stock markets.

This was announced by Elnur Babayev, the representative of SOFAZ's investment department, at a workshop for journalists entitled "State Oil Fund of Azerbaijan: managing of funds and investments."

He said that SOFAZ will redirect these investments to the shares on the European stock markets.

"The reason for SOFAZ’s such a decision was the expected increase in the interest rates in the U.S.,” he said. “As a result, investors will sell their shares on the stock markets. At the same time, the European Central Bank decided to increase the monetary expansion. This will increase the liquidity and the number of the stock markets in Europe. However, SOFAZ continues considering this issue."

The assets of SOFAZ were placed as follows: 57.54 percent in European countries, 22.65 percent in North America, 3.71 percent in Australia, 11.12 percent in the Asia-Pacific Ocean region, 0.85 percent in the Middle East, 0.99 percent in South America, 3.13 percent in international financial organizations, and 0.01 percent in Africa.

As of October 1, 2015, SOFAZ's assets reduced by 6.38 percent compared to early 2015 ($37.1 billion) and were estimated at $34.74 billion.

In his remarks Mushvig Bayramov, the director of the budget forecasting and projects department of SOFAZ, said over the past 15 years, savings of SOFAZ have increased considerably, and 30 percent of the received funds are allocated today for these purposes.

“In the period of high oil prices, SOFAZ applied the pessimistic pricing scenario, creating conditions for a larger volume of savings,” he noted. “If one looks at the history of fulfillment of SOFAZ's budget, in 2008 savings amounted to 60 percent, in 2009 - to 36 percent, in 2010 - to 48 percent, in 2011 - to 35 percent and in 2012 - to 24 percent. Currently, the level of savings is 30 percent.”

One of the main aims of SOFAZ is to stabilize the macroeconomic situation in the country, and in the period of low revenues from the sale of energy resources, additional burden falls on this structure, according to Bayramov.

“Currently, the stabilizing function of the state oil fund actively manifests itself, and SOFAZ acts as a buffer that protects the economy from the negative impact from outside.”

SOFAZ was established in 1999 with an asset worth $271 million. SOFAZ assets are placed partly in securities and partly in money market instruments.

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 up to five percent in gold.

The main goals of SOFAZ include the accumulation of revenues, the investment of assets abroad to minimize negative impacts on the economy, the prevention of 'Dutch disease', ensuring savings for future generations, and maintaining the current social and economic standards in the country.

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Aynur Karimova is AzerNews’ staff journalist, follow her on Twitter: @Aynur_Karimova

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