Thursday 4 December 2008

China not brave enough to save the world

China may be very good at making things cheaply but they are terrible investors. The losses China has made on US paper and its recent forays into buying stakes in large US companies and private equity holdings has left China nursing severely burnt fingers.

China is now pulling back from such deals in a world of financial uncertainty. The West cannot rely on China mobilising its vast surpluses to save Western companies.

Ironically this could be another example of China being a bad investor. They have already bought high and now show no appetite for buying low. The classic investor mistake. I expect China will start buying again only after prices have gone back up. The most basic mistake investors make.

CIC ‘not brave enough’ for foreign buys [FT]

HONG KONG, Dec 3 – China Investment Corp, the sovereign wealth fund that has incurred steep paper losses on its stakes in US financial firms, said on Wednesday it is ”not brave enough” to invest in foreign financial firms and lacks confidence in the shifting US financial regulatory situation.

”It’s changing every week. How can I be confident?,” Lou Jiwei, chairman of CIC, said during the Clinton Global Initiative event in Hong Kong, referring to US government efforts to rescue the devastated financial services sector.

He said the fund continued to make investments overseas, and was looking to diversify geographically to include emerging economies.

”We are still actively making investments outside, and we will continue our investments,” he said during a panel discussion.

Lou made his remarks just ahead of talks scheduled in Beijing between US Treasury Secretary Henry Paulson and Chinese officials in the fifth round of a so-called ”strategic economic dialogue” that Paulson initiated in 2006.

Lou said the world should not look to China to resolve the financial crisis.

”I think China as an independent country is not likely to lead the rest of the world,” he said.

While ailing financial firms in the United States and Europe have sought capital injections from cash-rich sovereign wealth funds, China Investment Corp has grown shy when it comes to investing in overseas financial companies.

”We don’t have the courage to invest in financial institutions any more, because we don’t know what problems we will put ourselves into,” he said.

CIC has incurred large unrealised losses on its stakes in US private equity firm Blackstone Group and Wall Street bank Morgan Stanley.

CIC bought its initial $3 billion stake in Blackstone just before the company went public at $31 a share in June 2007, and earlier this year increased that holding. The stock closed on Tuesday at $5.34.

Late last year it paid $5 billion for nearly 10 percent of Morgan Stanley. Shares in the Wall Street firm have tumbled from about $50 at the time of the deal to $12.04 on Tuesday.

CIC has also invested in the share listings of Visa and China Railway Group.


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