Euro Watchers Fixing Gaze on…China?

Ashby Monk

I should know better than to check my email during vacation. But, alas, I did. And, to my wife’s chagrin, my SWF curiosity — which was quite literally on a beach — was piqued by a friend’s note:

“I notice that both KIA and CIC have been forced to deny that they are not going to dump their European government debt, in the wake of the crisis. I think there’s something interesting to be written about how SWFs have become market leaders and a test of confidence. Stocks have rallied and the Euro has stabilised today…”

Interesting indeed! Apparently, what China and other sovereign funds have to say about the euro is more important than what Europe (or perhaps anyone else) has to say about the euro. Have a look at the raft of news reports over the past few days highlighting China’s ongoing commitment to the Euro area and its impact on euro confidence.

Why? Well, China originally set up their SWFs to diversify their reserves away from dollar denominated Treasuries and into other assets and currencies, such as the euro. So, it would be a huge blow to the euro if the CIC or SAFE decided that it would discount or drop euro assets.

But, as CIC President and CIO Gao Xiquing said in Paris yesterday, “…we were debating whether to underweight Europe, but our conclusion probably is not to underweight it.” On the news, financial markets raced ahead and crude oil surged $3 bucks. And it wasn’t even that strong of  a statement! “Probably”…?

Anyway, back to it…

3 Responses to “Euro Watchers Fixing Gaze on…China?”

  1. 1 MMcC May 28, 2010 at 5:18 pm

    What makes such comments even more theoretical is that, in my reading, Gao’s talking about CIC’s model portfolio, not the actual portfolio, which has not yet fully populated its Euro exposure, as far as anyone can tell. The effects on the Euro are derived from comments about a portfolio that is not one but two steps away from actual buying and selling. More interesting, if off-topic somewhat, is that Kuwait today completed an MOU with China, allowing CIC and KIC, among others, to invest directly in each others’ countries for the first time. My oil for your low-priced flatscreens, anyone?

  1. 1 We’re Not Selling…As Far As You Know « Oxford SWF Project Trackback on June 7, 2010 at 10:21 am
  2. 2 After Icelandic Bond Short, SWF Goes Long PIGs « Oxford SWF Project Trackback on September 10, 2010 at 11:52 am

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This website is a project of Professor Gordon L. Clark and Dr. Ashby Monk of the School of Geography and the Environment at the University of Oxford. Their research on sovereign wealth funds is funded by the Leverhulme Trust and The Rotman International Centre for Pension Management.

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