By Wang Xinyuan
China Investment Corporation (CIC), the sovereign wealth fund that manages about a tenth of the country’s over $2 trillion foreign reserves, appears to be diversifying and turning to resources and commodities, according to a market analyst.
According to a recent Reuters report citing unnamed sources, CIC acquired a 1.1 percent stake valued at 240 million British pound ($394 million) in Diageo, a leading UK-based group that owns labels such as Johnnie Walker and Baileys. However, the UK-based Financial Times later reported CIC was not the investor but the Chinese central bank. CIC refused to confirm or comment on the new reported deal.
However, CIC announced on its website July 3 an investment by its wholly-owned subsidiary Fullbloom Investment Corporation of $1.5 billion in exchange for a 17 percent stake of Teck Resources Ltd, Canada’s largest diversified mining company.
The CIC, according to Xinhua, confirmed June 17 that it would lend A$ 200 million ($159 million) to Australia’s leading property trust Goodman Group.
The CIC’s recent investment in resources is part of a strategy to spread its investments over different global markets and asset categories, said Ding Zhijie, deputy dean of the School of Banking and Finance at the University of International Business and Economics.
“CIC’s investment in resources seems a better choice than investment in the financial sectors, as financial assets tend to be more volatile and hard to predict,” Ma Hongman, an economist, told the Global Times.
“The best time to invest in resources is when the market is expecting inflation,” Ma said. CIC already missed the best time to invest in resources and commodities as prices have already picked up, Ma said, but he called it a good move for CIC.
“As an investor, it’s hard to understand the investment logic of Wall Street. Investing in resources is consistent with CIC’s strategy and investment in financials should not be the major focus for CIC in the long-term,” Ma said.
CIC’s role as a financial investor is to pursue long-term, stable and sustainable returns on its investment, according to CIC’s website.
Earlier CIC investments in financial sectors starting in 2007 drew widespread criticism for large paper losses. Those shares have lost much of their value, although they has made improvements recently in the stock market.
CIC invested $3 billion for $29.605 a share in Blackstone’s initial public offering by the New York Stock Exchange on June 22, 2007. On Friday, the stock was trading at $11.48.
CIC also bought $5.6 billion worth of equities of Morgan Stanley for $48.07 per share, which plunged to $28.25 as of Friday.
CIC was reportedly holding an 11.1 percent stake worth $5.4 billion in the Reserve Primary Fund in September, the US money market fund that failed in the financial meltdown. Bloomberg later reported it retrieved 86 percent of its investments from the failed fund.
One reason for CIC’s early losses is its State-owned enterprise management style and lack of expertise, noted Ma, the economist.
CIC’s overseas managers are paid less than those on Wall Street, and CIC lacks the best investment minds, Ma said.
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