Wednesday, March 4, 2009

China Investment Corp may diversify portfolio into commodities, energy. And: Commodities Soar versus Equities...

First up, from Mineweb:

China Investment Corp sees investment opportunities in energy and commodities sectors as prices have fallen steeply, Jesse Wang, a senior official with the country's $200 billion sovereign wealth fund, said on Wednesday.

Officials have said that CIC wants to diversify its portfolio in the natural resources sector after booking heavy losses on high-profile financial investments in private equity fund Blackstone and U.S. bank Morgan Stanley.

Wang, CIC chief risk officer, said the global recession had just begun, and as a result, bigger price declines in commodities and energy were possible.

"No matter where the company invests, it is always possible there will be book losses in a particular period," he told reporters on the sidelines of a meeting of a parliamentary advisory body.

The wealth fund will diversify its investments in the financial and energy sectors, Wang added.

A move into commodities and energy by CIC would add to a wave of investments backed by Chinese state funds in those sectors that topped $50 billion in February alone, including Russian and Brazilian oil deals and investments in Australian mining firms Rio Tinto and OZ Minerals....MORE

And from Dead Cats Bouncing:

Commodities as represented by the CRB index have outperformed the S&P by a stunning 33% since mid December, and stand at a new relative high, surpassing even the levels seen at the peak of the commodity bubble last July. Why, when equities are panicked by depression and deflation, should economically sensitive commodities (and also credit markets) be diverging so markedly? Even more remarkable is to see this performance while the dollar is hitting 3 year highs on a trade weighted basis, against the bearish consensus. Having called the bubble last Summer, I've been advocating the accumulation of long-term resource positions this year, and in December took a contrarian stance on oil, where I saw a bottoming process supported by the steep contango structure encouraging OPEC quota discipline (although that same price curve makes ETF investing perilous).

On Jan 30th, I noted that strategic stockpiling by China (and indeed Korea), partly to protect domestic industry margins, would be supportive of base metal prices and had fuelled a radical turnaround in the scrap market. Copper is at a one month high, oil is holding a floor at about $40 rising to $55-60 by year-end (and recent evidence that US gasoline demand has bottomed is very supportive), but even agricultural commodities like corn are catching a bid despite ample short-term supplies as ethanol production slumps....MORE