Sovereign funds too staid to ignite stocks

By Amanda Cooper - Analysis

LONDON (Reuters) - Sovereign wealth funds are sitting on assets worth about $2 trillion, but those who expect the cash-rich governments of the world to revive the bull run in European stocks are likely to be disappointed.

Just three months ago, the European equities market was set for its fifth successive yearly gain, fed by record levels of merger and acquisition activity and by robust global growth. Then, the worst liquidity squeeze in decades took hold and benchmark indexes now stand at three-month lows.

The 10-percent fall in the broader market from July's six-and-a-half year highs could mark a good buying opportunity for sovereign funds, whose coffers have been plumped by surging oil prices and a falling U.S. dollar.

The Dubai government agency that bought into Deutsche Bank DBGKn.DE this year said on Monday it could invest in U.S. banks, property and other sectors once turbulence in the financial markets subsides.

But generally, sovereign wealth funds are highly cautious and tend to target specific companies, rather than snapping up a flurry of stakes in firms or sectors for the sake of it.

Data from Dealogic shows acquisitions worldwide by sovereign wealth funds total $25.8 billion so far this year, representing barely 6 percent of the $451 billion value of 2007 European M&A deals.

"The sums don't really add up," said James Buckley, a European fund manager at Barings Asset Management.

"The market would require significantly more investment than they'd look like they're prepared to undertake, I think they're more likely to be selective buyers of strategic assets."