Wed Mar 4, 2009 1:58am EST
By George Chen and Xie Heng
BEIJING, March 4 (Reuters) - China Investment Corp sees investment opportunities in energy and commodities sectors as prices have fallen steeply, 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 into the natural resources sector after booking heavy losses on high-profile financial investments in private equity firm Blackstone (BX.N: Quote, Profile, Research, Stock Buzz) and U.S. bank Morgan Stanley (MS.N: Quote, Profile, Research, Stock Buzz).
Jesse Wang, CIC's chief risk officer, said the global recession had just begun, and as a result, bigger price declines in commodities and energy were possible.
"We are interested in basic necessities, resources and manufacturing because we want to balance our investment portfolio," Wang told reporters on the sidelines of a meeting of a parliamentary advisory body.
"Some people think there is still downside to resource assets, but it's really hard to pick the exact bottom. As long as we believe the assets are undervalued, we will be interested," he said.
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 (RIO.AX: Quote, Profile, Research, Stock Buzz)(RIO.L: Quote, Profile, Research, Stock Buzz) and OZ Minerals (OZL.AX: Quote, Profile, Research, Stock Buzz).
Wang said CIC would continue to diversify its investments in the financial sector but sounded a more cautious note.
"Frankly speaking, the valuation of some global financial institutions is very low but their prospects are still very low," he said. "We don't know who is going to go bankrupt tomorrow."
STRATEGY SHIFT
Last month, CIC Chairman Lou Jiwei travelled to Australia to meet Treasurer Wayne Swan, who holds sway over Chinese investments such as the Rio Tinto deal agreed by state metals conglomerate Chinalco.
For a story on CIC's shift in strategy, please click on [ID:nHKG224120]
As well as long-term oil deals and equity investments, in recent months China has been taking advantage of low prices by stocking up on a wide range of commodities.
It has imported crude oil for its strategic oil reserve, which can hold about 100 million barrels of oil, and is building tanks to store another 169 million barrels.
China's State Reserves Bureau (SRB) has also bought up metals to increase stocks of strategically important raw materials such as copper and to lend support to struggling smelters of aluminium and zinc.
With commodity prices in the doldrums after a collapse in demand at the end of last year, China's buying is seen as a rare source of demand in oversupplied global markets.
Zheng Xinli, a government policy adviser, also said that China should look to invest more of its 1.95 trillion yuan in foreign exchange reserves in energy resources, along with making outright corporate acquisitions.
"(The focus) should be on acquiring foreign companies, and purchasing rights to explore and produce energy resources that China needs," Zheng, deputy head of the Communist Party's policy research office, told reporters.
CIC has faced demands since its inception in 2007 to operate more transparently, but Wang said he was now concerned by a lack of openness in the United States as the financial crisis deepens.
"We hope that the U.S. government can be more transparent when they inject capital into U.S. banks because government injections will wipe out public investors," he said.
Wang said a U.S. Federal Reserve official recently told him that Washington was preparing to put more capital into about 20 banks in a new round of injections to repair their battered balance sheets.
Along with the book losses on its Morgan Stanley and Blackstone stakes, CIC also had a close brush with turmoil in the U.S. money market when a fund in which it had invested froze redemptions.
Wang said that CIC had already been able to get back 86 percent of its investment in the Reserve Primary Fund REPXX.O, which U.S. regulatory filings showed could potentially have been more than $5 billion. (Additional reporting by Alfred Cang, Aizhu Chen and Shao Xiaoyi; Writing by Tom Miles, Editing by Muralikumar Anantharaman)
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