by winston » Wed Mar 04, 2009 5:21 pm
China Investment May Buy Undervalued Commodity Assets (Update3) By Luo Jun and Zhang Dingmin
March 4 (Bloomberg) -- China Investment Corp., the $200 billion sovereign wealth fund, may invest in “undervalued†commodity assets, joining other Chinese companies in taking advantage of a seven-year low in prices.
“Many commodities are undervalued and are among our considerations for potential investments,†Executive Vice President Jesse Wang told reporters today on the sidelines of the country’s legislative advisory body in Beijing.
CIC, as the sovereign fund is known, is turning to commodity assets after losing money on financial firms including Blackstone Group LP and Morgan Stanley. Chinese state-owned companies last month announced plans to invest $22 billion in mining producers, securing iron ore, copper and zinc assets from debt-laden companies unable to secure funding in a global recession.
“As commodities are linked with the real economy, you may incur book losses should the real economy worsens,†Wang said. “If you hold the assets for a long term, you may still make a profit.â€
The Reuters/Jefferies CRB Index of 19 commodities this year fell to the lowest level since June 2002, as the global recession crimped demand from carmakers and builders. The price and demand collapse has forced Rio Tinto Group, OZ Minerals Ltd. and Fortescue Metals Group Ltd. to seek Chinese funding.
Currency Reserves
China, whose $1.95 trillion in currency reserves are the world’s largest, should use its reserves to buy overseas resources, Zheng Xinli, a deputy director at the policy research office of the ruling Communist Party, said today in Beijing.
The country should buy more assets that produce oil, natural gas, metals and grain, Liu Kegu, a consultant at state-owned China Development Bank told reporters outside the Chinese People’s Political Consultative Conference.
CIC is in talks to invest about $3 billion in Fortescue Metals, Australia’s third-biggest iron ore exporter, three people familiar with the transaction said last month. The proposed deal may be in preferred shares paying a dividend, one person said.
The sovereign fund will continue to increase its stakes in the Industrial & Commercial Bank of China Ltd., China Construction Bank Corp. and Bank of China Ltd. “at the appropriate time,†Wang also said today.
Central Huijin Investment Co., a unit of CIC, is the largest shareholder in the three Chinese banks. It said in September it would buy shares in the lenders to bolster confidence in the nation’s stock market.
Asset Allocation
The company spent 1.2 billion yuan ($175 million) to raise its holdings in the three companies between Sept. 23 and Nov. 28, the Shanghai Securities News reported in December.
CIC slowed its asset allocation overseas last year from its original plan as markets became more volatile and held “a lot of cash†at the end of the year, Wang said.
The fund holds “quite a lot of†non-financial assets including manufacturing, resources and basic necessities, he said.
China may tap the country’s foreign reserves to help companies buy oil fields abroad, China National Petroleum Corp., the country’s biggest oil producer, said in a statement last month, citing the state’s three-year energy plan. The nation may set up an oil fund to boost exploration, it said then.
The Chinese government should increase taxes on the consumption of natural resources to improve efficiency and protect the environment, China Development Bank’s Liu said.
The Ministry of Finance is studying a plan to raise export tax rebates of other products, Liu also said without elaborating.
It's all about "how much you made when you were right" & "how little you lost when you were wrong"