Sovereign wealth fund

China’s sovereign fund toasts 16pc return on overseas investments on back of ‘frothy’ US stocks

President Tu Guangshao says he personally now feels that US stock market valuations are getting too high

PUBLISHED : Monday, 15 January, 2018, 7:42pm
UPDATED : Monday, 15 January, 2018, 7:42pm

China Investment Corporation (CIC), the country’s sovereign wealth fund, enjoyed a remarkable 16 per cent return on its overseas investments last year, largely due to an ongoing “frothy” US stock market, its President Tu Guangshao said on Monday.

That compares with just a 6.2 per cent return in 2016, according to its annual report.

CIC’s total assets were worth US$813.5 billion at the end of 2016, making it the world’s second largest sovereign wealth fund, after Norway’s, which is worth US$960 billion.

But speaking in Hong Kong at the Asia Financial Forum, Tu added he personally now feels US stock market valuations are getting too high.

“Minds are divided on whether the US equity market is frothy at this level … my personal feeling is, it is,” said the 58-year-old former deputy Shanghai mayor during a panel discussion at the event.

Tu did not disclose CIC’s exact exposure to US equities, but said more than 40 per cent of its offshore assets are allocated in the US.

The investment fund’s stakes in publicly traded companies include Alibaba Group Holdings, operator of the world’s largest online shopping platforms and owner of the South China Morning Post. Alibaba’s shares rose 95 per cent last year.

CIC also owns shares in Singapore-listed Global Logistics Properties, the world’s biggest operator of warehouses, whose shares rose 50 per cent in 2017 before trading was suspended in January pending a management buyout.

And it also holds significant chunks of Indonesia’s biggest coal miner PT Bumi Resources, Mongolian coal producer SouthGobi Resources, Vancouver-listed miner Teck Resources and US power plant operator, AES Corp.

CIC allocated 45.8 per cent of its portfolio to the global equity market, according to the company’s 2016 annual report.

Tu stressed during the discussion that besides public equities, CIC “is keen to increase its direct investment in the US market” – an issue he had complained about during an interview with The Wall Street Journal last May, insisting that “US regulators have been too hard on us”.

CIC bought US$1.7 billion worth of prime Manhattan real estate in 2016, and Tu said besides that, he couldn’t name any other “symbolic direct investment” made in the country.

CIC signed a Memorandum of Understanding with the US investment bank Goldman Sachs in November to jointly set up a US$5 billion fund for future investment in American companies in the manufacturing, industrial, consumer and health care sectors, its official website says.

Fuelled by the massive tax cuts announced in December by US President Donald Trump, and a rosy economic outlook, Wall Street is having its best start to the year in more than a decade.

In the first fortnight of 2018, the Dow Jones Industrial Average has climbed 4.4 per cent and the S&P 500 has rallied 4.2 per cent – their best yearly kick-offs since the first nine days of 2003. The Nasdaq has also jumped 5.2 per cent, its best start since 2004, according to the Dow Jones Data Group.

But some analysts, including Morgan Stanley’s Andrew Sheets, have said they are now cutting their US stock exposure in favour of European equities, concerned the rally remains too long, and too fast.