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China’s SAFE is biggest public sector holder of equities

China’s SAFE is biggest public sector holder of equities

Staff Reporter

2014-06-19

Central banks worldwide have become major players in global equity markets, with a recent report showing that China’s State Administration of Foreign Exchange (SAFE) is the largest public sector holder of equities, according to Shanghai’s China Business News.

A report by the Official Monetary and Financial Institutions Forum (OMFIF) showed that central banks are experiencing a decline in income due to low interest rates, with some central banking investors becoming major investors in the equity markets, which could potentially overheat asset prices.

Among the global central banks that have sped up investment in the stock market, China stands out. The report indicated that SAFE, which operates under the People’s Bank of China, the country’s central bank, is the world’s public sector equity owner and administers US$3.9 trillion in foreign exchange reserves.

The Chinese central bank has been directly buying minority equity stake in important European firms. SAFE’s interest in Europe could be seen as part of China’s strategic move because it has helped counterbalance the monopolization of the US dollar, which also reflects China’s ambitions in the global finance sector, according to the report.

The OMFIF reached the conclusion based on the US$29.1 trillion market investment made by 400 public sector institutions in 162 countries.

In addition to central banking investors, the equity market’s ability to draw capital can be seen in the large hedge funds.

A report released by the Bank of America Merrill Lynch last Friday showed that global equity funds attracted US$11.4 billion on June 11, which was the largest since February.

Meanwhile, EPFR Global data also reflected that the equity fund market in emerging countries also drew new capital of US$2.3 billion, the largest capital inflow during the last nine weeks.

The policy of maintaining low interest rates has contributed to economic revival in economies headed by Europe and the United States, but it has also stimulated global central banks to accelerate investment in the equity market. However, the European Central Bank’s adoption of negative interest rates in June has widened the scale of the global quantitative easing policy, in which low interest rates are likely to linger for a longer period of time and further create an ideal environment for arbitrage trading.

 

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About bambooinnovator
KB Kee is the Managing Editor of the Moat Report Asia (www.moatreport.com), a research service focused exclusively on highlighting undervalued wide-moat businesses in Asia; subscribers from North America, Europe, the Oceania and Asia include professional value investors with over $20 billion in asset under management in equities, some of the world’s biggest secretive global hedge fund giants, and savvy private individual investors who are lifelong learners in the art of value investing. KB has been rooted in the principles of value investing for over a decade as an analyst in Asian capital markets. He was head of research and fund manager at a Singapore-based value investment firm. As a member of the investment committee, he helped the firm’s Asia-focused equity funds significantly outperform the benchmark index. He was previously the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. KB has trained CEOs, entrepreneurs, CFOs, management executives in business strategy, value investing, macroeconomic and industry trends, and detecting accounting frauds in Singapore, HK and China. KB was a faculty (accounting) at SMU teaching accounting courses. KB is currently the Chief Investment Officer at an ASX-listed investment holdings company since September 2015, helping to manage the listed Asian equities investments in the Hidden Champions Fund. Disclaimer: This article is for discussion purposes only and does not constitute an offer, recommendation or solicitation to buy or sell any investments, securities, futures or options. All articles in the website reflect the personal opinions of the writer.

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