China's sovereign wealth fund eyes neighboring markets

China's sovereign wealth fund will invest more in neighboring markets to buffer the impact of sluggish world economy, Europe's debt crisis and the U.S. fiscal cliff, said chairman of the China Investment Corporation (CIC) on Saturday. Infrastructure will be the priority of CIC's future investment to optimize its overseas portfolio, said Chairman Lou Jiwei, a delegate to the ongoing 18th National Congress of the Communist Party of China. He said the move goes along with the Party's call to consolidate good relations with neighboring countries through deepened collaboration. "From the perspective of investment, our job is to support neighboring countries to develop industries that are complementary to China's growth," he said. "We hope a stronger Chinese economy can benefit our neighbors." Lou said CIC's overseas investment aims to pursue long-term returns. Protectionism, social instability and political interruption have been the prominent hindrance to CIC's overseas maneuver, he added. Unlike other sovereign wealth funds, CIC's portfolio includes more direct investment, with the proportion of long-term investment reaching 50 percent. As the capital markets of peripheral emerging economies remain under developed, CIC's direct investment has been limited to Kazakhstan, Vietnam, Indonesia, Mongolia and Russia. The corporation lost 4.3 percent on its overseas portfolio for 2011 and posted 3.8 percent in accumulated annualized returns since 2007, according to its 2011 annual report. Lou attributed the declining return last year to market fluctuation and the tumbling prices of staple goods. He said that infrastructure investment, though with a mediocre return, is conducive to CIC's overseas portfolio. Its latest investment of this kind includes purchasing a 10-percent stake in British Heathrow Airport Holdings and nearly 9 percent of stakes in the holding company behind Thames Water. Lou expected the gradual recovery of the market, along with the improved investment structure, to bring "not bad" return this year. The delegate, who also serves as the chairman of Central Huijin Investment Ltd., said that the company will continue to advance China's financial reform by not only investing in state-owned financial institutions but also helping them secure sound corporate governance. Through capital input, refinancing and lowering the proportion of dividends in profits, Central Huijin has enhanced the capital strength of its equity-holding companies and contributed to the value appreciation of state-owned financial assets, Lou said.