Barron's Online had an interesting article about the possibility that central banks in China and South Korea are considering allocating some portion of their reserves with portfolio managers to invest in several asset classes including equities. Singapore already does this.
This is an interesting development. First, the article points out that central banks generally have a poor track record for big decisions like this. As the article also points out, the general purpose of a country's treasury is for things like crises or other shocks. In that light the money needs to be liquid.
Also a concern, not mentioned in the article, would be the moving of this money from where it is now to where it will end up. China has over a $1 trillion and I think I remember reading somewhere that Korea has $250 billion.
Clearly no country is going to invest every nickel into stock but there is some number that if exceeded would be disruptive. There is also some number that would just flat out be too much to not have immediately liquid.
I'm not sure what the right numbers are but I do think that something like 5% implemented slowly would be neither disruptive to across multiple markets nor reckless on the part of the investing countries.
One unintended consequence could be some big chunk of the investment pool going into a country where is does not fit, for example it would be tough for a fund to buy a couple of $ billion in Vietnamese stocks.
Either way this is fascinating and I'll try to follow it.
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8 comments:
Thsi is just an example on how the new economies are being more progressive and will pass the US over time.
Roger:
I have recently purchased stocks on foreign exchanges (Singapore, Thailand, etc.) and found the commissions ridiculous (around 5%). I used the foreign desk at Fidelity. Any suggestions on how to trade on a less expensive way in the future?
Roger, I suppose if major investment banks like Goldman Sachs can transmute into hedge funds it's not entirely illogical that central banks do something similar but for some odd reason it makes me uneasy; perhaps I'm just getting skittish in my old age (shrug).
JED, don't know if your two comments were intended to be ironic or what but found the juxtaposition hilarious none-the-less:
"...the new economies are being more progressive ..."
"I have recently purchased stocks on foreign exchanges ...and found the commissions ridiculous ..."
Guess one person's progressive is just another's regressive.
RW, I did not have the foresight to tie these together, but the comments are ironic.
Roger: Yeah, Singapore has been at this for quite a while with "Singapore Investment Corp". South Korea modeled their "Korea Investment Corp" from that and started operations in July 2005.
But investments didn't start going out until this past fall.
Not surprising, KIC picked BGI and SSGA for the initial investment. Also sounds like they're going very conservative. Not sure how about how China will proceed. With their huge reserves, I can't imagine what the total effect of their total reallocation will be.
thanks Richard
If China does this in a meaningful way it has the potential to roil the fixed income markets. The Asian bid for U.S. Treasuries, corporates,and mortgages has been a dominant theme for the last 3 years.
I have not dealt with them myself, but boom.com.hk looks like an interesting way to trade Asian stocks.
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