A silent financial shift is taking place! What are the $29 trillion “national treasuries” betting on?

Source: 24K99

The South China Morning Post reported on Monday (June 29) that, according to a survey released by independent global investment management firm Invesco on Monday, sovereign wealth funds and central banks managing around $29 trillion in assets are reallocating their investment portfolios, with a clear shift towards energy assets and growing concerns over the long-term status of the US dollar. This shift is driven by unprecedented geopolitical shocks.

The survey covers 90 sovereign wealth funds and 54 central banks. The results indicate that, amid multiple shocks such as trade tariffs, restricted shipping channels, and warfare in Ukraine and the Middle East, investors are placing greater emphasis on risk diversification and tend to construct portfolios that can "maintain stability even during disruptions."

About 80% of the surveyed institutions indicated that energy security and energy transition infrastructure are currently the most attractive asset classes for enhancing portfolio resilience. By 2026, the share of infrastructure assets in sovereign wealth funds has increased to 9%.

Additionally, the massive demand for energy from artificial intelligence (AI) infrastructure has further boosted the appeal of this asset class.

Invesco's Global Head of Research, Benjamin Jones, commented: "In a world rife with inflation shocks, geopolitical fragmentation, and increased market concentration, investors are re-examining traditional diversification assumptions and restructuring portfolios to address a broader array of risk outcomes."

He noted: "Resilience is shifting from a 'nice-to-have' to a 'must-have' requirement."

In recent years, the strengthened positive correlation between bonds and equities has also diminished the role of bonds as a risk diversification tool, prompting investors to pay more attention to liquid and real assets.

The survey also shows that concerns over the US dollar have become "wider and deeper." 61% of central banks noted that US debt levels are undermining the dollar's long-term status as a reserve currency, a substantial increase from 20% in 2024.

Although the conflict involving the US and Israel with Iran drove the dollar up by about 3% this year, analysts believe uncertainties in US policy and high debt levels may suppress the dollar's performance in the long run.

Due to the lack of alternative global reserve currencies, any change in the dollar's status is expected to be gradual. However, 29% of the respondents believe the dollar's status as a reserve currency will weaken within five years, up significantly from 12% in 2022.

Some institutions also said they are reassessing their reliance on US custodians, counterparties, and clearing systems to mitigate potential geopolitical risks.

An official from a European central bank stated they had switched from US custodians; a Latin American central bank noted it was establishing new non-US custodian relationships to guard against "worst-case scenarios."

However, some central bank respondents warned that such actions themselves could be seen as hostile moves by the US.

Meanwhile, about one-third of the surveyed institutions said they plan to increase their gold holdings to further diversify risk.

Editor: Zhu Henan