The China Investment Funds Look Outsides! Where will They Go?
With the Jittery of the subprime still rocking the world markets now and than, here comes a good piece of news. The China Investment Corporation was launched to invest and diversify China's huge foreign reserves. The Qualified Domestic Institutional Investor scheme, is picking up steam and the impact can gradually be felt around the world. So how will the new drivers of international liquidity affect the world's market?
The Origins of the Money
The China Investment Corporation (CIC) is a proposed cabinet level agency which will be responsible for managing part of China's foreign exchange reserves . The reason why the agency is formed is to seek better returns and diversify from the poor returns of US treasury bills which forms two-third of the China reserves.The China's Foreign reserves is at an approximate 1.7 trillion at the moment in time and 200 billion has been allocated for the
fund.
Qualified Domestic Institutional Investor, also known as QDII, is a scheme relating to the capital market set up to allow Chinese corporations and residents to invest through approved financial institution in offshore markets such as securities and bonds. QDII acreditated funds must invest in companies that derive 50% of their revenue from China. The overall capitalization is currently still small at a cap of 14.2 billion in May 2007. Given the amount of savings held in China, the potential of the scheme may be explosive.
The Tsunami of the East
For the stock market to continue it's upwards trend, one of the most important factor is the amount of uninvested money. This uninvested money is also called liquidity. The stock market can go only as high as how much investors are willing to put their cash into the system, thus when the cash runs out, the party will be over. This flow of liquidity is a boost to the global markets given that the traditional providers of liquidity from US and Europe are still suffering from the debacle of the subprime and credit crunch. Based on the past history and current development of the investment strategies of the CIC and QDII, there is a high chance that the funds will invest into the following subjects:
- Foreign companies with a significant interest in China.
These key companies are usually located in Singapore, Hongkong, US and Taiwan. One is that is certain is that, the CIC has recently announced that they will not invest into Taiwan companies, probably due to the tension between the two shores. This will no doubt be a blow to the Taiwan stock market, which is already suffering from meager returns, compared to their Asian peers.
- Oil and Commodity companies.
China needs more raw resources to fuel its growth and it needs to import a tremendous amount each year. What is a better way to secure its flow than to own the companies themselves? Companies that support the production of commodities such as refineries, special transports will benefit too.
- Strategic Interest: Property and Finance companies
The Japanese came and bought up a big chunk of properties at downtown New York. The Chinese will probably do the same. History has shown that the best way to prevent a war or tension is to have an interlocking economy with vested interest on both parties. There has been concerns in the west that the funds from the Chinese is a treat to national security. Inevitably, there is no way the western nations can reject the money given that China may be their most important ally in the future.
Aligning our Interest
With this new flow of liquidity, markets in Singapore and Hongkong show the most promises in performing well. We can expect that these two markets will perform well, at least until the start of 2008. As the future becomes less rosy, we will have to pay attention to the clues in the market as in when will the next big correction will come. By than, we will take profit. But for now, just enjoy the ride up!
With the Jittery of the subprime still rocking the world markets now and than, here comes a good piece of news. The China Investment Corporation was launched to invest and diversify China's huge foreign reserves. The Qualified Domestic Institutional Investor scheme, is picking up steam and the impact can gradually be felt around the world. So how will the new drivers of international liquidity affect the world's market?
The Origins of the Money
The China Investment Corporation (CIC) is a proposed cabinet level agency which will be responsible for managing part of China's foreign exchange reserves . The reason why the agency is formed is to seek better returns and diversify from the poor returns of US treasury bills which forms two-third of the China reserves.The China's Foreign reserves is at an approximate 1.7 trillion at the moment in time and 200 billion has been allocated for the
fund.Qualified Domestic Institutional Investor, also known as QDII, is a scheme relating to the capital market set up to allow Chinese corporations and residents to invest through approved financial institution in offshore markets such as securities and bonds. QDII acreditated funds must invest in companies that derive 50% of their revenue from China. The overall capitalization is currently still small at a cap of 14.2 billion in May 2007. Given the amount of savings held in China, the potential of the scheme may be explosive.
The Tsunami of the East
For the stock market to continue it's upwards trend, one of the most important factor is the amount of uninvested money. This uninvested money is also called liquidity. The stock market can go only as high as how much investors are willing to put their cash into the system, thus when the cash runs out, the party will be over. This flow of liquidity is a boost to the global markets given that the traditional providers of liquidity from US and Europe are still suffering from the debacle of the subprime and credit crunch. Based on the past history and current development of the investment strategies of the CIC and QDII, there is a high chance that the funds will invest into the following subjects:
- Foreign companies with a significant interest in China.
These key companies are usually located in Singapore, Hongkong, US and Taiwan. One is that is certain is that, the CIC has recently announced that they will not invest into Taiwan companies, probably due to the tension between the two shores. This will no doubt be a blow to the Taiwan stock market, which is already suffering from meager returns, compared to their Asian peers.
- Oil and Commodity companies.
China needs more raw resources to fuel its growth and it needs to import a tremendous amount each year. What is a better way to secure its flow than to own the companies themselves? Companies that support the production of commodities such as refineries, special transports will benefit too.
- Strategic Interest: Property and Finance companies
The Japanese came and bought up a big chunk of properties at downtown New York. The Chinese will probably do the same. History has shown that the best way to prevent a war or tension is to have an interlocking economy with vested interest on both parties. There has been concerns in the west that the funds from the Chinese is a treat to national security. Inevitably, there is no way the western nations can reject the money given that China may be their most important ally in the future.
Aligning our Interest
With this new flow of liquidity, markets in Singapore and Hongkong show the most promises in performing well. We can expect that these two markets will perform well, at least until the start of 2008. As the future becomes less rosy, we will have to pay attention to the clues in the market as in when will the next big correction will come. By than, we will take profit. But for now, just enjoy the ride up!
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