China's $300 billion sovereign wealth fund is considering new investments in resource-related companies after bets on commodities producers from the US to Kazakhstan paid off in 2009.
China Investment Corp (CIC) increased spending on energy and mineral assets last year to profit as the global economy recovers. The Beijing-based fund avoided the worst of the credit crunch in its first full year in 2008 and may have had a return of more than 10 percent in 2009, said London-based Jan Randolph, director of sovereign risk, analysis and forecasting at IHS Global Insight.
"They have timed the upside well both in market terms, but also to fit in with the longer-term diversification strategy," Randolph said.
CIC has had "early" talks for direct investments in Brazil, the world's second-biggest iron-ore exporter, and Mexico, the No 2 silver producer, Chairman Lou Jiwei said at the Asian Financial Forum in Hong Kong on Jan 20. Lou pumped about $10 billion into commodity-related companies in the second half of 2009, according to data compiled by Bloomberg.
With China's reserves at $2.4 trillion and swelling by an average of $37.8 billion a month last year, CIC has asked the government for another $200 billion, the Economic Observer reported on Nov 21, citing a person it didn't identify.
In July, CIC bought 17.2 percent of Teck Resources Ltd, Canada's largest base-metals producer, for $1.5 billion. It acquired an 11 percent stake in a unit of Kazakhstan's state-run energy company in late September, two weeks before purchasing 45 percent of Nobel Oil Group of Russia.
In November, it announced investments in US power producer AES Corp and GCL-Poly Energy Holdings Ltd, China's biggest poly-silicon producer.
AES closed at $13.31 in New York trading on Dec 31, giving CIC a paper profit of 7 percent, while GCL-Poly shares had risen 30 percent from the fund's HK$1.79 purchase price.
CIC's early investments also recovered some losses last year, with shares of Blackstone Group LP doubling and Morgan Stanley's stock surging 85 percent.
Those returns may encourage CIC to be "more aggressive", according to Zhang Zhiming, director of asset allocation research at HSBC Holdings Plc in Hong Kong.
"Most investors do momentum investing and CIC is no exception," he said. "They are sticking to a double-diversification principle. First, buy a bit of everything and be geographically spread out. And timing-wise, to be also spread out to avoid major ups and downs."
China Investment Corp will likely expand the scope of its investments this year into "all categories", including US and European markets that it largely shunned in 2009 during the crisis, Zhang said. The fund may invest in a US infrastructure project, Lou said, without giving details. It may put money in US high-speed railways, the Shanghai Securities News reported on Jan 13, citing a person it didn't identify.
CIC was created in September 2007, funded by a $200 billion chunk of the nation's foreign reserves. The $2.4 trillion in reserves - equivalent to the annual output of India and Australia combined - have increased about 60 percent since CIC was founded, driven by current account surpluses and foreign direct investments.
A CIC press official said she was unaware of the request for $200 billion in extra funds reported by the Economic Observer. The company's top executives weren't available for interviews for this story.
"CIC will soon become one of the top three sovereign wealth funds in the world with this extra capital, and one of the most aggressive in 2010 to 2015," said IHS's Randolph.