Today the Questor column in the Daily Telegraph slapped a 'buy' on Barclays Bank plc. Without judging this call - beyond wondering if libertine Mr Litterick is treading the path himself - it is borne of a wider 'feeling' lacing the current equity rally. A 'feeling' out of the 'money must work' and ' there will be a bottom in the next year' schools of thought. Thus are sidelined trillions leeching back in.

Of these, Sovereign Wealth Funds (SWFs) alone control circa $3 trillion. The Guardian produced a neat map illustrating this in February but a superior, more comprehensive (but less legible) version was published by La Tribune.

$3 trillion is not huge next to global market capitalization worth (circa $50 trillion). But it is significant and growing: Citi project SWFs to grow to $7.5 - $10 trillion by 2012. Today SWFs are worth about double the assets under management of private equity and hedge funds combined; and their risk appetite (fortunately for banks holding distressed loans and securities) spans what is available.

Compared to traditional asset managers the numbers are still small. The top 3 asset managers control about $5.5 trillion. But SWFs are incremental and focused increasingly on the financial sector. In 2007 and year to date 2008 they have invested about $65bn in financials - over 70% of all SWF investments.

Exhibit 1: Improving risk conditions for banks


These funds and the 'feeling' are what have driven the recent run of improvement in risk conditions and equity prices. But it is, ultimately, a gamble that US residential housing markets don't become another 15% (or more) worse; or that there is no inconvenient exogenous shock.

Cynics who consider it likely benefiting banks will end up lending a minority of the windfall - with most destined to buttress the destabilising effect of future write-down streams - may wonder if SWFs, carefully sterilised domestically, are merely breeding a new variant of Dutch Disease for export.

In the meantime everyone watches developments in the real economy.


NB: Chart background graphic courtesy the BBC website.

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