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China’s Wealth Fund Says Developed Markets Drive Recovery

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CIC Chairman Ding Xuedong
CIC Chairman Ding Xuedong said, “Europe has a lot of potential. It is turning from negative to positive so there should be a lot of investment opportunities.” Photographer: Brent Lewin/Bloomberg

Jan. 14 (Bloomberg) -- China Investment Corp., the country’s $575 billion sovereign wealth fund, favors European infrastructure and real estate as developed markets will drive the next phase of the global economic recovery.

“Europe has a lot of potential,” CIC Chairman Ding Xuedong said yesterday at a conference in Hong Kong. “It is turning from negative to positive so there should be a lot of investment opportunities.”

The U.S. will remain a focus of the Beijing-based fund, Ding said. CIC will seek “‘targeted investment opportunities’’ in Asia and emerging markets as economic expansion in those regions slow, he said.

Wall Street’s biggest banks say the slump in emerging-market assets last year that left equities trailing advanced-nation shares by the most since 1998 may continue as the U.S. Federal Reserve scales back unprecedented stimulus and interest rates rise. Goldman Sachs Group Inc. recommends investors cut allocations in developing nations by a third, forecasting ‘‘significant underperformance” for stocks, bonds and currencies over the next 10 years.

The U.S. accounted for 49.2 percent of CIC’s diversified equity investments as of end of 2012, while emerging markets made up 23 percent, the fund said in its latest annual report. Non-U.S. developed market stocks made up 27.8 percent, it said without providing year-earlier comparisons.

Overseas Investments

Private companies in emerging markets “may face difficulties because of capital outflows or a credit crunch” if the Federal Reserve continues to taper, Ding said.

CIC reported a 10.6 percent return on its overseas investments in 2012, rebounding from a loss in the previous year as global equities rallied. The fund boosted investments in real estate, infrastructure and agriculture, generating steady returns in its long-term portfolio and producing “good results,” according to the 2012 report.

“The next five to 10 years will be an age of global infrastructure upgrade,” Ding said, citing the need to improve constructions in Africa and the U.S. “So I like infrastructure.”

The “U.S. economic recovery has been accelerating,” Ding said. Some manufacturing has returned to the country, aided by the production of shale gas and a relative decline in labor costs, and there are “growth potential” in technology companies, he said.

To contact the reporter on this story: Bei Hu in Hong Kong at bhu5@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net

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