China's sovereign wealth fund loses $6 billion

Posted: 2008-12-04 23:44:30+05:30 IST
Updated: Dec 04, 2008 at 2344 hrs IST

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Dec 3: China's sovereign wealth fund said it wouldn't 'dare' invest in foreign financial firms after losing $6 billion on stakes in Morgan Stanley and Blackstone Group LP.

"I don't dare to invest in financial institutions now," Lou Jiwei, chairman of China Investment Corp (CIC), said on Wednesday at a conference in Hong Kong. "The policies of the developed nations on these institutions are not clear. Until they are clear, I don't dare to invest in them. What if they go bust? I will lose everything."

Western banks have turned to state-owned investment funds in Asia and the Middle East for money as they seek to shore up capital eroded by almost $1 trillion in writedowns and losses triggered by the collapse of the US subprime mortgage market. CIC, with $200 billion, invested $5 billion last year for 9.9% of Morgan Stanley and $3 billion in Blackstone, the world's largest private-equity firm. Both New York-based companies have lost more than three-quarters of their market values since the investments were made.

China Development Bank, which funds the nation's public works, spent 2.2 billion euros ($2.8 billion) for 3.1% of Barclays Plc in July 2007 and bought another 136 million pound ($202 million) stake in June. The combined holding, which was diluted to 2.97% after Barclays' latest round of fundraising in November, is now worth $582 million. Morgan Stanley gained 6.1% in New York on Tuesday, taking this year's drop to 77%. Blackstone fell 4% , extending its loss to 76% in the period. "Chinese institutions' investments in US and European counterparts are doomed to fail," said Li Jing, a Shenzhen-based analyst at Ping An Securities Co. "CIC should definitely avoid investments in financials as the credit crisis is nowhere near the bottom and they have no experience whatsoever in managing these companies." The US Treasury has committed $700 billion to rescue financial firms after a global credit seizure forced the sale of Bear Stearns Cos, a government rescue of American International Group Inc and the collapse of Lehman Brothers Holdings Inc this year. Bloomberg