Markets

CIC sees 10% investment loss in May

(Agencies)
Updated: 2010-06-10 10:51

China's sovereign wealth fund gained 11 percent last year, but this year will be challenging, given the volatility in global markets, the fund's chief risk officer said on Tuesday.

Last year's gains for the fund, excluding its domestic arm, exceeded 17 percent, making 2009 "a good year for us," said Jesse Wang, China Investment Corp (CIC)'s executive vice president, who was speaking at an Asian banking conference hosted by the San Francisco Federal Reserve Bank.

But this year, public equity market volatility has torpedoed returns at CIC, which has about $300 billion under management.

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"May and June, because of the decline of the US market and European market, we have about 10 percent mark-to-market losses," Wang said.

The fund, which held most of its money in cash in 2008, deployed most of its money last year, and is "still fighting" with the central government to be allocated new funds for this year to take advantage of an expected rebound in the Standard & Poor's 500 Index .SPX, he said.

Local media have reported the fund has been allocated $100 billion, or about half of what it had requested.

"We believe the overall recovery is on track," he said. "We still anticipate S&P may come to 1,250 level."

The broad-based US S&P 500 stock index was trading near 1,045 as he spoke.

Short-term risks include uncertainty and market volatility amid the European debt crisis, as well as the hangover from the recent financial crisis, which in developed countries is manifest as a depletion of fiscal resources and in emerging economies shows up as asset bubbles, he said.

CIC was set up in September 2007 with the goal of seeking higher returns for some of the country's stockpile of foreign currency reserves.

Its portfolio is about 25 percent stocks, 18 percent fixed income and 8.8 percent "anti-inflation" securities, Wang said. It also allocates about 9.4 percent of its funds to a hedge fund, 7 percent to private equity, 8.6 percent to cash and 18.9 percent to "special situations," or, as Wang put it, "hunting."

About 4.3 percent is allocated to "other" assets, which include legacy holdings of US dollar debt that is expected to mature in the next three years or so.

CIC's mandate is to invest overseas, putting one of the world's fastest growing major economies out of bounds as an investment target, he said.

But the fund has invested in resources as an indirect bet on China's growth, which will drive resource consumption, he said.

As the fund awaits new money from the central coffers, it is juggling its portfolio to boost returns, and may reduce its "overweight" allocation to emerging markets this year, Wang said.

"We have a constant analysis to find out which markets are undervalued, which are overvalued," he said.

CIC is due to release its annual report in a month or two, he said. In addition to its overseas investments, the company also has a domestic arm, Central Huijin Investment Ltd in which it holds stakes in domestic banks.