Sovereign wealth funds see risks up, but Greece unique

SYDNEY Sat May 8, 2010 8:00am EDT

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SYDNEY (Reuters) - Sovereign risks have risen due to the turmoil in the euro zone, but the woes Greece faces are not the same as in other European nations and the situation can be resolved, the chair of a meeting of sovereign wealth funds said.

The group of 22 sovereign wealth funds holding talks in Australia on Saturday called on governments worldwide to take coordinated and urgent action to introduce finance-sector reforms, and shore up confidence in global investment markets.

"One important conclusion that we reached though is that the situation is resolvable, and in particular, the circumstances of Greece are not the circumstances of some of the other countries," said David Murray, who heads Australia's Future Fund and chaired the meeting of the International Forum of Sovereign Wealth Funds.

Sovereign wealth funds are heavyweights in the financial world, controlling $3.8 trillion between them in 2009, according to London-based think tank International Financial Services London.

"In Greece, the level of indebtedness is higher. There was a serious surprise factor on the budgetary and fiscal conditions in that country," added Murray.

"That is not in the case in the other countries that have been talked about. In their case, their fiscal position was known and accurately reported," he told a news conference.

Markets plunged this week on mounting fears that Greece's debt crisis may spread across the euro zone and take down other countries with weak balance sheets such as Spain, Portugal and Italy.

Anxiety over the future of the euro zone has dragged the euro to 14-month lows, but it got a slight reprieve on Friday after German law-makers approved plans to contribute to a Greek rescue package worth 110 billion euros ($140.3 billion).

"We believe that Greece is different from the others, that some collective action is possible to resolve the situation," said Murray.

Murray, talking in a personal capacity, said the recent turmoil in Europe stemming from the debt worries was likely to force a serious debate on the intent of the euro project that could be beneficial in the long term.

TALKS ON CHINA BUBBLES AND POLICY

A joint statement issued by the sovereign wealth funds said that the group felt "current conditions in the financial markets and the uncertainties relating to sovereign credit risk assessment, especially in the euro zone, were presenting a less certain investment environment."

But the group warned governments against any knee-jerk response to restrict flows of capital across borders.

In contrast to the problems in the euro zone, Murray said the wealth funds also discussed the risk of asset bubbles forming due to the rapid growth rates in countries such as India and China.

"The briefing we got said that China has been doing an excellent job of managing that," he said.

"The reading is that China is very, very alert to the problem and actually taking some steps to deal with it," he added.

There have been concerns over dramatic spikes in house prices in fast-growing nation's such as China.

Before the Greek debt crisis hit its new pitch this week, global investors were in a frenzy speculating when China would let the yuan rise to help quell such price pressures.

Discussion around a prospective move had drawn huge attention from world leaders and capitivated markets.

But the escalating Greek debt crisis has cooled yuan speculation for now, with some paring bets for a move over the next year.

Jin Liqun, chairman of the board of supervisors at China's wealth fund China Investment Corp, told reporters that China was now more sophisticated in setting monetary policy and would not make drastic changes.

"The major progress in terms of improved sophistication of China's policies is that instead of big swings as we experienced in the past in the early reform years, the government has been increasingly sophisticated in dealing with the market," he added.

"So you will find instead of abrupt policy changes, China would be more carefully fine-tuning its policies," he said.

(Editing by Mark Bendeich)

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