This story from last week didn’t get much attention, so I thought I’d highlight it again. Mineweb says China’s main sovereign wealth fund is under pressure to swap its US dollars for gold, oil, nd other hard assets. It explains part of what we’ve seen in commodities recently.
Several reports are coming out of China that there is pressure on state-controlled organisations - notably the country’s main sovereign wealth fund, China Investment Corporation (CIC) to rapidly build investment in non-Chinese enterprises. While the CIC itself, with apparent access to some $300 billion in funds - and the possibility of more from the government - may be concentrating on hedge funds and other investment entities, there is another sector for Chinese state-owned companies looking at major investment in commodities. Indeed with the funds available as China seems to be dumping its US dollars in favour of more concrete assets, virtually no minerals sector is safe from Chinese participation.
While CIC was set up only two years ago, funded with $200 billion in initial capital, a report to the U.S. Congress noted that according to top Chinese officials, it was created to improve the rate of return on China’s $1.5 trillion in foreign exchange reserves and to soak up some of the nation’s excess financial liquidity. Depending on its performance with the initial allotment of $200 billion, the CIC might be allocated more of China’s growing stock of foreign exchange reserves - and this has already proved to be the case.
Coincidentally (or not) Bloomberg tells us today that:
Investments in commodity products advanced to $2.63 billion last month, at least double the amount recorded for any August, with investors favoring Europe over the U.S., Barclays Capital said.
Commodity products” includes futures, mutual funds and ETFs.
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