Thursday, June 10, 2010

Euro Woes Don't Faze Chinese Pension Fund

Reuters reports, Euro will survive debt crisis - China pension fund:

The euro will be able to weather the sovereign debt crisis, the Chinese national pension fund chief said on Thursday, helping spark a sharp rebound in the European currency from the day's lows.

Dai Xianglong, chairman of the $114 billion National Social Security Fund, also said the large fiscal deficit in the United States remained a serious concern and that it could dent the value of the China's foreign exchange reserves.

"I think it is quite normal for the euro to be experiencing swings because of the European debt crisis," Dai told a financial forum in Tianjin, a port city just east of Beijing.

"I do believe the euro will gradually stabilise and survive the crisis."

He struck a cautious note on the dollar.

"The U.S. fiscal deficit is still big, so there is a risk that the value of China's forex assets will contract," Dai said.

The euro climbed about 0.4 percent versus the dollar from its lows earlier in the day after he spoke.

Dai said in March that the Chinese pension fund was looking to pour more money into foreign stocks and bonds as well as overseas private equity funds and unlisted firms.

The Chinese pension fund had about 6.7 percent of its assets invested abroad, according to numbers released earlier this year. Chinese regulations permit it to allocate up to 20 percent of its assets in overseas markets.

The pension fund expects its assets under management to reach 2 trillion yuan ($293 billion) by 2015 from 776.5 billion yuan at the end of last year.

As far as the euro is concerned, China's exports are booming, so the last thing it wants is a stronger USD (which it's pegged to). And China is getting into the reflation trade too. More stocks, corporate bonds, private equity and hedge funds. All that liquidity will drive risk assets even higher. Get ready for the next bubble. It's not a matter of if but when. My feeling is that it's right around the corner.

I leave you with a couple of videos worth seeing. Frank Gong, a China strategist for JP Morgan discusses the outlook for trade, and Andy Xie, independent analyst, discusses the property market in China. Both interviews are must watch interviews.

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