Bye-bye, US bonds? China’s sovereign wealth fund trims overseas equities, bonds amid ‘stresses and challenges’

China’s US$1.2 trillion sovereign wealth fund cut its holding of overseas equities and bonds last year while raising the proportion of alternative assets and cash, in light of the fast-changing external environment, according to its annual report released on Friday afternoon.

Peng Chun, chairman of the China Investment Corporation (CIC), also explicitly expressed the need to develop “new modalities for outbound investments” by leveraging its geographical advantages – hinting that it may increase the portfolio’s exposure to Asia and bilateral investment funds.

Released hours before US Fed chairman Jerome Powell’s long-awaited economic symposium in Jackson Hole, Wyoming, the report may reflect China’s unease amid bilateral tensions and its wariness over potential market adjustments if the US Federal Reserve were to start tapering bond purchases.

The CIC is one of China’s “national teams” for outbound investment. It reported overseas returns of 14.07 per cent last year, lower than 17.4 per cent in 2019, according to the annual report published on its website. The fund was established in 2007 “to diversity China’s foreign exchange holdings and seek maximum returns for its shareholder within acceptable risk tolerance”.

The CIC’s annualised cumulative 10-year net return – an internal appraisal benchmark – stood at 6.82 per cent, 1.28 percentage points higher than its target.