SAFE buys stakes in Australian banks in forex strategy shift
A Hong Kong-based investment arm of the State Administration of Foreign Exchange has bought stakes in at least two Australian banks, a sign that Beijing is stepping up its push to improve returns on the mainland's huge foreign currency reserves.
The move suggests that the manager of the mainland's 1.43 trillion yuan in foreign exchange holdings, which has traditionally followed a highly conservative investment strategy, is aping the more aggressive approach of China Investment Corp by investing in overseas equities.
A spokesman for Australia and New Zealand Banking Group said yesterday that SAFE Investment acquired less than 1 per cent of the bank's shares at the end of last year, while sources at Commonwealth Bank of Australia confirmed that SAFE's Hong Kong-registered subsidiary was a shareholder.
A spokesperson at National Australia Bank declined to comment on whether the investment unit had bought shares, despite Australian reports that SAFE had small investments in all of the big Australian banks totalling A$1.2 billion (HK$8.24 billion).
SAFE's Beijing-based spokesman said yesterday that he was 'unclear' about the situation.
Although the investments are tiny compared with CIC's recent US$5 billion investment in Morgan Stanley, they suggest a quiet shift in strategy for SAFE, which has traditionally ploughed money into safe but low-yielding US Treasury bills.
Analysts had expected SAFE to stick to a conservative strategy while CIC, which was set up to make more lucrative investments with the country's foreign exchange, would take a riskier approach.
They suggested investments in Australian equities were aimed at gaining a better yield on the mainland's Australian currency holdings.
'Investing in Australia is a good idea as this is one way that China can benefit from its own demand. China is helping to fuel the commodities boom, which is in turn boosting the Australian dollar,' said Paul Cavey, a China economist at Macquarie Securities.
Nevertheless, it remains unclear why a little-known subsidiary of SAFE rather than CIC itself has been charged with making small but risky overseas investments. One possibility is that CIC has bigger fish to fry.
'There's no point in CIC investing less than US$1 billion at a time. The fund has so much money and so few people to invest it that it needs to invest in chunks this size,' said Fraser Howie, the head of structured products at brokerage CLSA.
