China may have lost more than US$80 billion of its foreign exchange reserves after buying into equities just before world markets collapsed last year, the Financial Times said yesterday.
The poorly timed investments were carried out by the State Administration of Foreign Exchange (SAFE), the manager of the nation’s nearly US$2 trillion in reserves, the newspaper said.
“SAFE has built up one of the largest US equity portfolios of any foreign government entity investing abroad, including the major sovereign wealth funds,” Brad Setser, an economist at the Council on Foreign Relations, a US-based think tank, told the paper.
“It appears SAFE began diversifying into equities early in 2007 and, rather than being deterred by the subprime crisis, it continued to buy,” he said.
The report comes after Chinese Premier Wen Jiabao (溫家寶) said last week he was “a little bit worried” about the fate of his nation’s huge investments in the US.
Any estimate of SAFE’s investment portfolio has a large margin of error, since it does not tell the public where it puts its money.
However, Setser’s calculations, as reported by the Financial Times, show that China has lost more than US$80 billion on holdings of about US$160 billion in overseas equities.
China’s decision to diversify into equities came after growing criticism that it was not getting enough out of its traditional method of parking its forex reserves mainly in safe but low-yielding US Treasury bonds.
In another bid to diversify, China in 2007 set up a sovereign wealth fund, the China Investment Corp, charged with managing US$200 billion of the nation’s forex reserves.
That corporation’s investment also have now come across as being badly timed, with huge losses sustained on a number of high-profile transactions, including shares in troubled financial giants Morgan Stanley and Blackstone.
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