Investment Policy of China and how you can benefit

In one of the rare interviews by the Chairman and CEO of the world's most important and probably the largest Sovereign Wealth Fund, CIC, China Investment Corporation, spoke with the WSJ.

His views are pretty much identical to mine which is why I choose to link up here.

1. European problem will rise, not because of financial instability but due to political instability. All 27 countries in the Eurozone or the 17 in the Euro will not be able to reach consent on any issue well in time.

"By comparison, in August 2008, when Hank Paulson launched the TARP scheme, everybody expected it to pass the House immediately. Anybody with sanity would approve it because it would save the U.S. economy. But it turned out that it didn’t pass the House in the first vote. It took them another week to pass the TARP. That caused a lot of losses. Even in a single country like the U.S., it took such challenges to get consensus, let alone Europe, which has 27 member states. The U.S. had a second chance to solve its problems, but Europe may not have many chances."

2. China has stayed out of Europe since more than one year now.

"We have reduced our exposure to that. We sold down our exposure to peripheral countries a long time ago, before any loss was incurred."

3. China wishes to invest in Latin America and South Africa aside from Asia. Of course, they have directed more of their investments internally in China more than anywhere else.

"Mr. Lou: Right now, we’re underweighting on developed countries, and overweighting on emerging markets.

The one economy we have the most confidence in is China. We’re trying to look for investment opportunities with a China angle or a China factor. We’re focusing a lot of attentions on our neighboring countries.

We’ve already made investments in Brazil and South Africa. We’re bullish on Africa and Latin America."

4. Commercial Real Estate: This is again one of my favourite investment areas for last 2-3 years since it generates visible investment cash flows;

"In Asia and emerging markets, they don’t have fully developed public markets. So we’re looking more at alternative investments including private equity, infrastructure and direct investment, which should suffer less from the European crisis.

Take real estate, for example. We recently invested in two commercial buildings in Moscow city, the new city. They are quite promising."

5. On the farce that was the Facebook IPO.

"Mr. Lou: I can’t understand it. Such opportunities as Facebook are not for us."

6. China will get to become a strong contender to being an international reserve currency and have an open currency freely tradable, as has been my view.

They have taken lot of steps in the last few years, such as signing agreement with various countries on yuan trade settlement such as Japan, Russia, India, issuing yuan bonds and loans, allowing London, Dubai and HK to deal in yuan bonds and issuing USD bonds of various state owned corporates on a very regular basis to create an international bond yield curve etc. besides maintaining an extremely stable and appreciating price of the yuan which only a strong country can manage with a firm focus on the future.

"Mr. Lou: From an observer’s point of view, it’s time to open up. But today may not be the right timing. There is a crisis going on. But after the crisis, it might be time."

We must listen to what the world's most savviest and most invisible people who are decision makers and influencers of Government and international investment policy and have control over billions of dollars of investment funds have to say and simply follow in their footsteps. They are more important than Warren Buffet simply because they have more influence and follow directions of Governments and we can easily ride on their coat tails while protecting and preserving our capital and make it grow.

June 7, 2012, 6:58 PM HKT
Q&A: CIC Chief Lou on Crisis in Europe, Investment Focus