China sovereign wealth fund downgrades commodities

July 26, 2013 1:31 pm

China wealth fund downgrades commodities

By Simon Rabinovitch

China’s sovereign wealth fund has switched emphasis away from commodities to financial stocks in its overseas equity holdings over the past year. The investment shift by China Investment Corp is notable because the fund is uniquely placed to make a call about the global commodities market, with Chinese demand one of the biggest drivers of prices. Since its establishment in 2007 CIC had focused most heavily on commodities. But the fund, which had $575bn of assets under management at the end of last year, changed tack as Chinese growth slowed. Less than 17 per cent of CIC’s overseas equity holdings were in the energy and materials sectors, according to its annual report published on Friday. That was down from 23 per cent at the end of 2011.At the same time, it increased its exposure to global banking stocks. CIC’s equity investments in the financial sector rose to 22.3 per cent of its overseas portfolio from 19 per cent at the end of last year.

CIC did not explain the rationale for the shift in its allocation.

The change helped drive a rebound in its performance. CIC posted a 10.6 per cent gain on its overseas investments last year after losing 4.3 per cent a year earlier. The global MSCI financials index gained 37 per cent last year, while the metals and mining index lost 9 per cent.

CIC has not completely turned its back on commodities. Among its bigger direct investments last year were $425m for a 5 per cent stake in Russia’s Polyus Gold and $300m for 10 per cent of EP Energy in the US. But even within the commodities realm, its tastes are changing. For its long-term asset portfolio, it highlighted agriculture as the commodities sector it was most interested in.

Another notable change in CIC’s investments last year was the increase in its US allocation. At the end of 2011 43.8 per cent of its global equities were invested in the US. That rose to 49.2 per cent in the US alone at the end of last year. If CIC has maintained that level, it stands to have done well again this year, with the S&P 500 up more than 20 per cent so far.

In previous years, CIC gave a breakdown of its equity allocation in Europe and other regions of the world, but this year it classified all of its non-US investments as either advanced economies or emerging markets, with no further details.

CIC has a new chairman this year for the first time since its launch in 2007. Ding Xuedong was named this month as the replacement for Lou Jiwei, who is now China’s finance minister. Mr Ding said he expected that the wind-down of quantitative easing programmes in developed economies would make for volatile global markets.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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