Sovereign fund sees 10.6% return

Ding, the chairman, said, “The subdued global economic recovery, compounded by rising investment protectionism, will cast a prolonged shadow over the outlook for global financial markets.”

He predicts increased volatility on world markets as major developed economies start reducing their quantitative easing programs, posing challenges for institutional investors.

Xu Hongcai, a senior financial researcher at the China Center for International Economic Exchange, a government think tank, suggested that the sovereign wealth fund sell some foreign equities to cash in on the return.

“Once the developed countries start to reduce asset purchasing, capital may flow out of China and other emerging markets. So the CIC should foresee the potential risks,” Xu said.

According to the US Treasury Department, China’s holdings of US Treasury bonds increased by $25.2 billion in May and the total reached a record high of $1.315 trillion. It rose by $151.9 billion from a year earlier.

“It is very urgent for CIC to diversify the investment in US Treasury bonds,” said Xu. “A better choice is to invest in overseas infrastructure projects and support Chinese enterprises to accelerate the Going Out strategy (which encourages Chinese enterprises to invest overseas).”

Teresa Lin, DBS managing director and joint group head of corporate and investment banking, said the upturn in global equities is likely to continue in coming months.

“The eurozone debt crisis has, for now, been stabilized by the commitment of unlimited central bank support.

“US politicians were never going to send the country into deflation and financial crisis despite the haggling over the debt ceiling and government spending cuts. Life goes on and the equities risk premium goes down.”

In 2012, the State Council injected another $19 billion into the sovereign wealth fund after raising $30 billion in 2011. The company was launched in 2007.