CIC Seeks Commodities, Property as Hedge, Lou Says

By Bloomberg News

Oct. 28 (Bloomberg) -- China Investment Corp., the country’s sovereign wealth fund, said it has $110 billion for overseas investments and will focus on buying into commodities companies and property as a hedge against accelerating inflation.

“Now we are seeing expectations of medium and long-term inflation, and the value of major currencies may have to fall to a new equilibrium level,” Chairman Lou Jiwei told a forum in Beijing today, according to a transcript of his comments posted on financial portal hexun.com. “Investing in major commodities can be a hedge. So is investing in real estate.”

CIC, which held almost $300 billion in assets at the end of last year, is seeking resources from Indonesia to Canada to support expansion in the world’s fastest-growing major economy. It spent at least $3.69 billion on resources in September, buying stakes in Indonesia’s PT Bumi Resources, Noble Group Ltd. and in the London-traded unit of Kazakhstan’s state-run energy company.

“China needs to diversify its foreign reserves investments away from U.S. Treasuries and it lacks resources, so it has to be buying minerals from a national strategy point of view,” said Helen Wang, a Shanghai-based analyst with DBS Vickers Hong Kong Ltd. “Now may not be the best time in terms of prices, but they may be betting that commodities prices will be even higher in the next five to 10 years.”

Copper prices in London have almost doubled this year on Chinese demand while crude oil has added 86 percent in New York.

The fund has made “not bad” returns from overseas holdings this year after pumping more money into stocks, mining, energy and real estate, Lou said. CIC sees opportunities in “many” commodities companies after asset bubbles burst in the financial crisis, he added.

‘Long-term’ Returns

“Our strategy is just long-term risk-adjusted return, is making money,” Lou said. “Now is the opportunity. I don’t care about how many tons of oil to ship home, I care about whether stocks are worth more money.”

Overseas investments by Chinese companies surged 190 percent to $20.5 billion in the third quarter from a year earlier, the Ministry of Commerce said yesterday. Chinese businesses’ non- financial direct investments in Africa, mainly in mining, manufacturing and construction, jumped 79 percent in the first nine months to $875 million, the ministry said yesterday in a separate statement.

China’s sovereign wealth fund is increasing investments in commodities firms after losing money on financial companies including Blackstone Group LP and Morgan Stanley.

SouthGobi Energy Resources Ltd., a unit of Ivanhoe Mines Ltd., said Oct. 26 it has obtained $500 million of financing from CIC to expand and develop coal reserves in southern Mongolia.

JSC KazMunaiGas, Bumi

CIC bought an 11 percent stake in Astana, Kazakhstan-based JSC KazMunaiGas Exploration Production for about $939 million, it said Sept. 30. A week earlier it bought $1.9 billion of debt from Jakarta-based Bumi Resources, Indonesia’s biggest coal producer, and paid $850 million for a 15 percent stake in Noble Group, a Hong Kong-based commodity supplier. Vancouver-based Teck Resources Ltd., Canada’s largest diversified mining company, sold a 17 percent stake to CIC in July.

China’s economy, the world’s third largest, expanded at the fastest pace in a year in the third quarter as stimulus spending and record lending growth helped the nation lead the world out of recession. Gross domestic product grew 8.9 percent from a year earlier.

The world’s biggest buyer of commodities including soybeans, cotton and iron ore, will expand 8.2 percent this year, compared with a March forecast of 7 percent, the Asian Development Bank said this month.

‘A Certain Percentage’

CIC should set aside “a certain percentage” of its investments in commodities because they’re important to China’s economic growth, Lou said. A “bigger” part of the fund’s investments in mining, energy and real estate were made in the open market through external agencies and not disclosed to the public, he said, adding that direct investments are less efficient and more difficult to adjust.

CIC is preparing for “rebalancing” overseas investments to further boost returns, Lou said without elaborating, according to the transcript. The company has completed nearly half of its overseas investments, he said.

To contact the Bloomberg News staff for this story: Zhang Dingmin in Beijing at Dzhang14@bloomberg.net