Oh, for an investment bank client like China Investment Corp, as Lex observed recently, noting: “While other sovereign wealth funds talk a good deal, CIC does them”.
Many governments may also wish they had an SWF like CIC. In August, the fund, which had just under $300bn in assets at the end of last year, announced it had outperformed most of its peers — despite a return on its global portfolio of minus 2.1 per cent in 2008.
On Monday, CIC said it would continue increasing its stakes in the nation’s three biggest lenders, Industrial and Commercial Bank of China, China Construction Bank and Bank of China.
As Bloomberg reports, CIC unit Central Huijin Investment Co, is already one of the biggest shareholders in the three banks — which rank among the world’s six biggest banks by market cap — with 35.41 per cent of ICBC, 67.52 per cent of BoC and 57.09 per cent of CCB.
Now, CIC, still cash-rich, is pursuing a concerted shift in strategy, away from cumbersome (and of late, not particularly profitable) investments in western financial firms, after a relatively subdued period.
Its recent purchases of commodities-related businesses — and now domestic financials, reveals its growing role as a direct tool of Beijing’s fiscal and financial priorities.
Notably last month, the fund made three big commodities investments in the space of a week, starting with its $850m investment for a 15 per cent stake in Singapore-listed commodities group Noble Group. It then effectively lent $1.9bn to Bumi Resources, Indonesia’s biggest coal producer, for investments, and then paid $939m for an 11 per cent stake in London-listed Kazakh oil group, JSC KazMunaiGas Exploration Production.
With its planned increase in Chinese bank investments, CIC — at the government’s behest — is undoubtedly aiming to boost confidence among investors after the benchmark Shanghai Composite Index fell 6.1 per cent in the third quarter, the worst performance among the largest emerging markets.
ICBC and Bank of China are among the four biggest stocks in the Shanghai Composite and, as one strategist told Bloomberg, CIC’s investment is an indication that Beijing “isn’t that optimistic about the market”.
It is also, as Lex noted, a sign that domestic competition in China is abating. As Lex explains:
CIC’s recent flurry of deals suggests that CIC has resolved a bureaucratic turf war with SAFE (the State Administration of Foreign Exchange), the official reserves manager, which had been building its own portfolio of non fixed-income investments. Now, under new leadership, Safe seems to recognise that sterilising inflows to meet central bank objectives is a tough enough task on its own.
CIC has limits on its ambitions. Its domestic arm, Central Huijin, has unspecified calls on its resources to recapitalise shaky state-owned financial institutions … But the quicker CIC gets its pool of capital to work, the sooner it can receive another injection from Safe. It remains one of the world’s premier fee-machines.
Related links:
BofA, CCB and capitalism with Chinese characteristics – FT Alphaville
China ready to place bets on hedge funds – WSJ