China Invests in Commodity Investments

Commodity Bets Bare Fruit, as China Investment has 11.7% 2009 Global Return

An 11.7% return on China’s sovereign wealth fund’s foreign portfolio was recorded in 2009. The return marked a reversal of the loss the portfolio sustained just a year earlier.

An 80% surge of net income brought the grand total to $41.7 billion, and a total return on equity amounted to 12.9%, compared to the 6.8% of 2008.

The company stated in its annual report that China Investment Corp., faced with numerous challenges this year, will adjust asset allocation in a timely manner, despite being surrounded by an unstable global economy and fluctuating markets. Commodity-related investments from U.S. power supplier AES Corp. to Indonesia’s PT Bumi Resources were quickened, as $58 billion of the fund were used globally last year on publicly-traded equities and bonds

A London-based senior analyst from Roubini Global Economics announced that this newfound focus on resources should yield strong performances in 2009, and that the results will be evident in 2010 given the risk-full assets that dominate CIC’s portfolio.

CIC’s cash holdings decreased to 32% of its portfolio as of Dec. 31, prompting the company asl the Chinese government for more investment funds.

Other sovereign wealth funds have sustained global increases in assets, with some surging 27% in 2009, and Temasek Holdings Pte, Singapore’s primary investment firm confirmed assets rose 43%to $186 billion ($135 billion) last year.

Stocks and Bonds

36% of CIC’s global portfolio rests in equities, and 26% lies in fixed-income products.

Bumi Resources, an Indonesian coal producer has fallen almost 30%, which marks more bad news for CIC, as its largest investment rests in the company.

However, a renewed confidence, more experienced organization, and a clear strategy should all contribute to CIC’s 2010 return to form, regardless of the volatile state of global economy.

Penn West, Apax

CIC in May gained a new stake in the world’s biggest crude deposits outside Saudi Arabia this year by investing $817 million ($790 million) into Canada’s Penn West Energy Trust. Also, around 650 million euros ($845 million) were put into Apax Partners LLP’s private-equity fund, which indicates that CIC is continuing investing in natural resources and sharing risk through partnerships and managed funds. This strategy seems to have a risk profile that limits the downside, and protects against dollar-based inflation/devaluation, and therefore showcases CIC’s plan to be quite logical and fruitful in the future.