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Begin forwarded message:

From: <Casey.Owens@do.treas.gov>
Date: July 23, 2010 10:24:45 AM EDT
To: <eschwerin@senecaga.com>
Subject: CIC

FYI

How was the book party? Sounds like an amazing story.

Bloomberg News, sent from my iPhone.
China’s CIC May Post Record Year for 2009 as Markets Recover

July 23 (Bloomberg) -- China’s sovereign wealth fund is set to post
its best yearly gain in 2009 after stepping up investments in
commodities to ride a rebound in global markets.

China Investment Corp. is likely to report a return on its global
portfolio “well over 10 percent” in its upcoming annual statement,
said Rachel Ziemba, London-based senior analyst at Roubini Global
Economics. The $300 billion fund had a 2.1 percent loss on its global
assets in 2008, after chalking up a 0.2 percent return in its starting
year of 2007 when the value of a $3 billion investment in Blackstone
Group LP plunged.

Chairman Lou Jiwei pumped nearly $10 billion into commodity-related
companies such as Canada’s Teck Resources Ltd. in the second half to
benefit from the global economic recovery. That compared with $4.8
billion in new investments across all industries for the entire 2008.

“2009 results should be good because commodities staged a strong
rally,” said Francis Lun, general manager at Fulbright Securities Ltd.
in Hong Kong. “CIC was very timid, which actually helped it to avoid
the financial tsunami” in 2008.

Temasek Holdings Pte, Singapore’s state investment firm, this month
said assets climbed 43 percent to S$186 billion ($135 billion) in the
year to March 31. Globally, sovereign fund assets climbed 9 percent in
2009 from a year earlier to $3.5 trillion, London-based research firm
Preqin Ltd. said in March.

CIC reported its 2008 results on Aug. 7, 2009.

Teck Resources, AES

CIC is asking the government for more funds to invest, Executive Vice
President Jesse Wang told a conference in San Francisco on June 9,
with cash holdings having dropped to 8.7 percent of its global
portfolio from 87.4 percent at the start of 2009.

In July last year, CIC bought 17.2 percent of Teck Resources, Canada’s
largest base-metals producer, for $1.5 billion. It acquired an 11
percent stake in a unit of Kazakhstan’s state-run energy company in
late September, two weeks before purchasing 45 percent of Nobel Oil
Group of Russia. In November, it announced investments in U.S. power
producer AES Corp. and GCL-Poly Energy Holdings Ltd., China’s biggest
polysilicon producer.

AES closed at $13.31 in New York trading Dec. 31, giving CIC a paper
profit of 7 percent, while GCL-Poly shares rose 30 percent from the
fund’s HK$1.79 purchase price on Nov. 19 to the end of last year.

The Reuters/Jefferies CRB Index of 19 raw materials advanced 23
percent in 2009, reversing a 36 percent drop the previous year.

Morgan Stanley, which is about 10 percent owned by CIC, surged 85
percent last year, while Blackstone doubled, helping China’s state
fund recoup some earlier losses.

A record $1.4 trillion credit expansion by Chinese banks boosted state
lenders’ profits last year, contributing in turn to CIC’s total
earnings via unit Central Huijin Investment Co.

Bank Stakes

The Industrial & Commercial Bank of China Ltd., the world’s most
profitable lender that was 35.4 percent owned by Huijin, had a 20.2
percent return on equity last year. Bank of China Ltd., 67.5 percent
held by the CIC investment arm, had 81 billion yuan in profit.

“2010 will be a tougher year for CIC given that many risky assets have
suffered,” Ziemba said. “CIC’s pace of purchases seems to have
slowed down in the first half of 2010, as it has spent a greater
portion of its liquid funds, having deployed much of the international
portfolio in 2009.”

CIC had 24.68 percent of its global portfolio in public equity
markets, Wang said at the Asia Banking and Finance Conference last
month. The sovereign wealth fund holds about 18 percent of its
investments in fixed-income securities and 8.8 percent in inflation-
linked products, he said. Almost 7 percent is held in private-equity
funds.

Rally Stalls

The MSCI World Index, which surged 27 percent in 2009, has dropped 5
percent this year as the European debt crisis and China’s efforts to
curb asset bubbles threatened the global recovery. PT Bumi Resources,
Indonesia’s biggest coal producer in which CIC made its largest
investment announced in 2009, has fallen nearly 30 percent.

Excluding investments held in the Huijin unit, CIC isn’t allowed to
invest in China. The government may move control of Huijin to a new
agency it plans to set up to hold stakes in the nation’s state-owned
financial companies, the official China Daily reported July 7.

That may result in more volatility for CIC as it would make the
international portfolio the only assets it manages, Ziemba said.

Still, “it will reduce concerns from international regulators that CIC
is investing on behalf and in conjunction with its bank subsidiaries,”
she said. “That might reduce concerns about stakes it takes abroad.”

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

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