China fund admits ‘concern’ over eurozone

2010-5-27 Harry Wallop telegraph

However, many analysts were sceptical of the statement, saying Safe, which holds an estimated $630bn of eurozone bonds, did not deny it was concerned about the so-called peripheral bond markets of Greece, Portugal, Spain, Italy and Ireland – as stated in the FT.

Nigel Rendell, senior strategist at RBC Capital Markets, said: “The Chinese would be mad not to be reviewing their holdings of eurozone bonds, and particularly those in the periphery.

“All funds are considering what they should do with their eurozone holdings. We are getting calls about the eurozone from the biggest institutional investors to the smallest retail investors, asking us what we think about holding this debt.”

Mansoor Mohi-uddin, managing director of foreign exchange strategy at UBS, added: “[Safe’s] comments have calmed the currency markets for now but Asian central banks don’t need to sell their euro holdings for the currency to keep declining.

“If central banks decide to keep a higher proportion of new reserves in dollars now – as they did when the euro was launched in 1999 – they will reduce their euro purchases and that will mean further weakness in the currency.”

Representatives from Safe have been meeting foreign bankers in Beijing in recent days to discuss its holdings of eurozone debt in the wake of the crisis that has swept through the region’s bond markets.

Safe rarely cuts its existing holdings significantly as it has so much new money to invest every month, choosing instead to reduce the proportion of new investment it devotes to a particular asset – thereby reducing the weighting of that asset in its overall portfolio.

According to the latest figures announced by Safe, the country’s foreign exchange reserves totalled $2,447bn at the end of March, up $174bn in just six months.

Mr Gao said CIC’s $300m fund, which is managed independently from Safe, faced many challenges in Europe and was treated unfairly by European national institutions because of “ideological differences” and “ignorance of some foreign governments and supervisory institutions.”

“If they carefully read the information we released, or if they can remove their tinted glasses, they will know they shouldn’t be ‘fearful’ of us,” Mr Gao was quoted as saying by Xinhua News Agency.
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