Foreign Funds Could Lead To Protectionism

by Stewart Douglas

Story link: Foreign Funds Could Lead To Protectionism

A report released today has suggested that foreign government-backed investment portfolios could give rise to an increase in protectionist sentiment across world governments with individual authorities looking to protect the interests of domestic companies.

Emerging Asian economies like China and India have initiated substantial investment in offshore companies in order to provide long term, sustainable value, to the extent that governments may start to resent the level of influence of these foreign funds in key industry sectors.

The rapid growth of this type of foreign investment fund has also extended within the UK, with Barclays bank and Sainsbury’s notably involved in the most prevalent investment portfolio.  In the report launched today it was reflected that this kind of influence is likely to attract protectionist attention from the governments concerned.

Additionally, Standard Chartered reports that funds could grow by 600% in total value in just ten years, giving a significantly greater interest in national industries to outside government-backed investment funds, which few countries would actively encourage.

At present, oil-rich Qatar owns in excess of 30% of the value of the London Stock Exchange in funds of this nature, which the government could eventually seek to prevent on the grounds of such a substantial external economic influence.  Similarly Saudi Arabia also owns substantial holdings on the FTSE, enabling it a significant influence and power over the way in which companies are run.

Furthermore the levels of secrecy exercised in these kinds of funds have prompted the US authorities to call for an overhaul of disclosure requirements as a step towards protecting the interests of domestic industries and investors.

It is also rumoured that a number of nations have legislative intention for preventing further growth of these funds over the coming years, as the first step towards bringing this forecast widespread protectionist policy.