ANALYSIS - Sovereign wealth eyes move into commodities, oil

By Christopher Johnson

LONDON (Reuters) - Sovereign wealth funds (SWFs) -- the investment arms of cash-rich nations such as China and Qatar -- are poised to raise their holdings of commodities and oil in a move that could have a huge impact on financial markets.

Sitting on up to $4 trillion in assets, much of it from selling oil and other raw materials, most SWFs have so far been conservative in their investment choices, holding dollars, treasuries and shares in large U.S. and European companies.

But they have been badly burned by the global financial and economic turmoil over the last 18 months and are now looking at new strategies to protect their interests, analysts say.

As these funds switch into commodities and oil those markets will be supported by the sheer weight of their purchases.

Surveys suggest SWFs may now have between $10 billion and $20 billion in commodities and oil, but this underweight by most measures could rise rapidly to hundreds of billions of dollars.

"The potential for growth is absolutely massive," said Amrita Sen, analyst at Barclays Capital in London and co-author of a report this month on sovereign wealth funds and commodities. "They are waiting for the right signals. They want to see the economy beginning to bottom and that oil has turned."

SWFs, notoriously secretive and with few published figures -- have existed since the 1950s but they have grown dramatically in the last decade and are now run by more than 30 countries.

Some such as the Government of Singapore Investment Corp (GIC), which has an $300-350 billion in assets, have taken a fairly conventional approach to fund management, holding bonds, dollars, other major currencies and taking stakes in companies.