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Asian Equities Attract Asian Public Investors

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Shanghai SE Composite Index - July 2012Asian public investors view China and India as key growth drivers whose public equity markets are poised for increases as GDP continues to rise for these countries. Many subscribe to the notion that China and India have the capacity to maintain relatively high economic growth rates compared to European and American economies.

The Korea Investment Authority (KIC) and Korean Teachers’ Pension Fund (KTPF) plan to allocate more assets to emerging market equities particularly in Asia. The KIC plans to two-fold its exposure in emerging markets equity over the next few years. In fact, the KIC has a $200 million Qualified Foreign Institutional Investor (QFII) quota in China.

The KTPF plans to give mandates to fund managers with extensive Chinese investment experience and track records.

South Korea’s central bank, the Bank of Korea invested US$ 300 million into China’s A-shares in June 2012. The Bank of Korea has a 300 million dollar quota under the QFII program. The central bank wants to diversify its foreign reserves. The Bank of Korea has external asset managers including Chinese asset managers targeting Chinese public markets. In late April 2012, the Bank of Korea began purchasing China’s government bonds from the OTC market.

Japan’s Government Pension Investment Fund (GPIF) has already chosen six asset managers to actively manage emerging market equities in its $1.35 trillion portfolio. The GPIF could not find any suitable asset management firms for passive investments in their emerging markets mandate. The GPIF still has a heavy allocation to domestic bonds and stocks.

The Qatar Investment Authority sought approval to invest up to US$ 5 billion in Chinese bonds and stocks. Chinese regulators have an upper limit set at around US$ 1 billion. More foreign investors want access to mainland Chinese publicly-traded assets. Even if the quota is fully utilized, foreign investors would represent less than 1% of total free-float market capitalization in China.

On another note, in mid-July, the New Zealand Superannuation Fund (NZSF) committed $100 million worth of investment to a fund which is building infrastructure projects in China. The NZSF is teaming up with other sovereign funds to invest in infrastructure projects.

Maiden Lane I Ends, Federal Reserve Aims to Shrink Balance Sheet

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The U.S. Federal Reserve’s balance sheet has been set to decline automatically since 2017, as the central bank has been liquidating funds from its US$ 4 trillion in Treasury bonds and mortgage-backed securities. As holdings matured, the Fed refrained from reinvesting them. This amounts to US$ 40 billion in monetary tightening monthly. Meanwhile, interest rates have slowly, and continuously, risen. The maturation of these Fed assets could exert upward pressure on long-term yields.

Mortgage rates, applications, and home sales have been falling, likely due to the rising rates. While rates are still historically low, U.S. President Trump has criticized the rate hikes. However, the Fed has no interest in changing course, and rates are set to continue to rise. According to Fed meeting minutes, “The Chairman suggested that the Committee would likely resume a discussion of operating frameworks in the fall.”

The size and content of the Fed balance sheet going forward will be a point of discussion for Chairman Jerome Powell. While there is no end in sight for the Fed’s plans to tighten economic policy, changing conditions may warrant further examination. With the U.S. stock market thriving, there is no indication that tightening has had a material impact on the economy. However, conventional wisdom asserts that the Fed will raise rates “until something breaks.” Market commentators have also suggested that, in the event of an emergency, the Fed will have a harder time stepping in due to the size of its balance sheet. A large part of the Fed’s monetary strategy is based around communications, and Fed-watchers have made a habit of hanging on every word. The Fed announced a shrinking balance sheet well in advance, and made gradual moves in that direction. The process has been smooth thus far. The Fed’s tightening will reach its peak, US$ 50 billion, in October. It is unclear exactly how much stimulus is still needed in the economy to reach the Fed’s 2% inflation target. The Fed’s easing policies have been criticized for the lopsided benefits they provided, more for Wall Street than Main Street. However, the easing will reduce their role in the market.

The End of Maiden Lane I

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QIA Gets a New CEO

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Sheikh Abdullah Bin Mohammed Al-Thani exited as CEO of the Qatar Investment Authority (QIA). He has been appointed as minister of state by Amiri Order No. (4) of 2018.

Mansoor bin Ebrahim Al-Mahmoud is appointed as the new CEO of QIA. He held positions in various organizations such as CEO of Qatar Development Bank and worked at Qatar Museums.

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SWFI First Read, September 19, 2018

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QIA Eyes Investment in Chinese Lender Lufax

The Qatar Investment Authority (QIA) is in talks about a possible investment into Shanghai-based Lufax, one of China’s largest online lenders. The seller of the possible stake is China’s Ping An Insurance (Group) Co. Ltd. Lufax’s official name is Shanghai Lujiazui International Financial Asset Exchange Co. Ltd.

Wealth Funds Back Hotpot Giant

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