Sovereign funds and central bank accelerate to embrace gold
The results show that central banks and a small number of sovereign funds have increased their holdings of gold. On average, the proportion of gold allocation in the total reserve portfolio of central banks rose from 4.2% in 2019 to 4.8%, and nearly half of the increased gold holdings (48%) are used to replace negative yield bonds.
Pan Xinjiang believes that the continuous expansion of global negative yield bonds means that borrowing money can not only earn interest, but also lose money. This is unreasonable, but this is the investment logic of negative yield bonds. As long as sovereign funds buy negative yield bonds, it means that holding maturity is bound to lose money, so more institutions choose to allocate non interest bearing gold.
Data show that in response to the impact of the epidemic, central banks in more than 40 countries and regions have cut interest rates nearly 70 times. The 10-year Treasury bond yield of the United States dropped from nearly 3% in 2018 to 0.6% at present. The 10-year bond yield of Germany and France was negative. The yield of Japans 10-year Treasury bond was close to zero, and the yield of many developed countries dropped to the lowest level in history. According to the statistical data of Bloomberg, the global stock of negative interest rate bonds has exceeded 10 trillion US dollars recently. Therefore, gold is expected to continue to become an investment substitute for some market entities.
According to Jingshuns research report, the central bank mainly invests in physical gold, with 40% invested in gold futures and gold ETFs. This is because ETFs and futures are easy to trade and have good liquidity, so they are attractive to the central bank. As of July 22, SPDR gold trust, the worlds largest gold ETF, increased its position by 7.89 tons (0.65%) to 1219.75 tons.
Kingsoft also found that most (67%) of the Asian sovereign funds that invested in gold held local physical gold, and one third invested through futures and exchange traded funds. Pan Xinjiang told reporters that although the relative yield of emerging market bonds is relatively high, it faces greater macro risks, so investing in gold is a better choice for liquidity.
Stock gradually becomes reserve asset allocation
In addition to gold, some central banks and sovereign funds have also increased the allocation of stock assets in the face of the challenge of expanding the capacity of negative income assets.
Jingshuns study found that 39% of central banks believe stocks will become core assets, especially in Europe. At the same time, nearly half of the institutions believe that stock assets can improve the return on investment, thus expanding the scale of reserves.
Investment objectives are becoming more and more important. Because some central banks are responsible for generating revenue for the government or pension, stocks can be an attractive investment target. For example, the Bank of Norway, the worlds largest sovereign fund, is entrusted by the Ministry of finance to manage pension funds, so it is important to generate revenue, Mr Pan said.
Liquidity, rate of return and diversified allocation are the reasons for increasing part of the stock allocation. However, stocks do increase the volatility of investment returns, which could not be accepted by central banks and other institutions 20 years ago. But Jingshun believes that with the change of investment portfolio, many institutions have budgets to take additional risks. At the same time, negative returns mean that bonds also become more risky, so stock allocation becomes more reasonable, so central banks are more willing to take on some volatility.
It is worth mentioning that, so far this year, a shares have gained the first in the world. According to the data provided by lufft, whether in RMB or US dollar terms, Chinas onshore stock market has led the world in terms of growth, Denmarks stock market ranked second, while the strong rebound of US stocks was only close to the beginning of the year. According to the reporters understanding, there are many European and Middle East sovereign funds that hope to increase the allocation of Chinas onshore stock market in the near future.