China’s SWF (Sovereign Wealth Fund) is moving to expand its international investments this year targeting European Countries that previously attempted to set limits on the level of China’s investment in their countries.
Last week, China Investment Corp’s Chairman, Lou Jiwei, spoke to a group of business leaders and explained that since Chinese investment in Europe wasn’t welcomed last year, it actually prevented China from experiencing the market losses it would have experienced had China invested in Europe.
Now, all that has changed.
Key European countries are now welcoming China’s investment in their countries given the current economic environment, and China is now actively investigating where to invest some of its sovereign wealth fund.
The fund, known as CIC, experienced significant paper losses on positions that it took in Morgan Stanley and Blackstone LLP last year, and, in spite of the extremely low prices of Western financial firms, the fund has been reluctant to invest. Although not known for sure, it is widely believed that CIC experienced only minor losses last year in comparison with the broader markets due to the fact that the fund had very conservative investments.
Mr. Lou, as he’s known, also used the speaking opportunity to poke fun at the European countries who rebuffed him last year, ““Officials in Europe told me they wanted me to state clearly that we wouldn’t take stakes of more than 10%, or ask for voting rights. I said I can’t accept this. They said Europe doesn’t welcome me, so I said fine, if Europe doesn’t want me, I won’t go. So I want to thank these financial protectionists, because as a result, we didn’t invest a single cent in Europe.” (Online WallStreet Journal April 10, 2009)
I’ve repeatedly said that I believe China would lead the world out of this global slowdown and become the world economic superpower and consumer in the near future. This is another sign this forecast may be reaching fruition.
Increasingly, China is throwing its economic weight around, recently telling the world that the IMF should develop a new world reserve currency, possibly moving away from their reliance on the US Dollar.
So what does this potentially mean for your portfolio?
Short term it probably makes little impact. But long term, I believe it makes the case for an absolute returns portfolio* with exposure to foreign stocks and currencies.
There’s more on this in my current market update, click here for a complimentary copy, www.usawealthmanagement.com.
Securities offered through USA Advanced Planners (Member FINRA/SIPC). Advisory services offered through USA Wealth Management. USA Advanced Planners and USA Wealth Management are affiliated companies. The opinions expressed herein are those of the writer and not necessarily that of the above noted affiliated companies. This update may contain forward-looking statements, including, but not limited to, statements as to future events that involve various risks and uncertainties. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual events or results to differ materially from those that were forecasted.
- Absolute return investment strategies aim to produce a positive return regardless of the directions of the financial markets by investing in cash or other low volatility investments and then taking hedged long and/or short positions in securities that when combined are expected to have modest exposures to market returns. No investment strategy is 100% accurate. Investing in market related securities involves a risk of principal loss. Prior to making any investment decision, the services of an appropriate professional should be sought as investment related recommendations are dependent upon the personal financial situation of each individual investor.
