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China and the U.S.: The Next Two Years for Institutional Investors

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A lot can happen in two years. Look what just happened in the final five months of 2016. Even the most sophisticated of financial pundits and asset manager CEOs were hard pressed to believe a Trump rally would actually occur in late October 2016 given the momentous news cycle of 2016.

Chief investment officers, both public and private, are re-evaluating asset allocation strategies, given the probability of more rate increases by the Federal Reserve. Is this the beginning of the end of the low-yield world? With animals spirits released by the promise of U.S. tax reform and more deregulation, mid-cap U.S. stocks appear to be the clear beneficiaries so far. Adding China into the mix, how will the world’s largest exporter behave in a rising U.S. economy?

Both China and the U.S. have their own issues that have been covered in several industry white papers. Encouraging Chinese trade statistics, although questionable by some market technicians, recently helped stabilize market confidence, along with intervention from Chinese state actors. China is also on the precipice of allowing more foreign capital into various markets such as mainland Chinese equities and bonds. At the moment, China is far from a hard landing due to its massive foreign reserves and expansive monetary toolkit; however, skeptics point out the risks of credit-fueled growth and rising debt with consumers. The country has cracked opened up their bond markets, fulfilling a level of institutional investor demand. If China can expand liquidity in its capital markets, the risk of “hard landing” could dramatically decrease.

What has changed in the last months? Despite North Korea being more provocative toward its neighbors and the U.S., America and China are now both moving toward “country-first” policies. After decades of subsidizing other economies, a Trump presidency has signaled a stark change in how the U.S. will manage its finances, instead of “paying for everyone’s dinner.” In effect, the U.S. government, as a world superpower, has provided military support for many Western nations (Germany, South Korea, Japan, etc.), thus allowing those economies to move other monetary resources toward other industries. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

GIC Raises Stake in China Oilfield Services

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On November 14 2018, Singapore’s GIC Private Limited acquired 2,982,000 H- shares in China Oilfield Services Ltd at an average price of HK$ 6.9883. GIC increased its ownership in China Oilfield Services to 9.07% from 8.91%. China Oilfield Services is an oilfield services company. It is a majority owned subsidiary of Chinese state owned company CNOOC Group.

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Carlyle Group Completes Deal on 19.9 Percent Stake in Fortitude Re

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More private equity firms are scooping up reinsurance assets. The Carlyle Group finalized its acquisition of a 19.9% stake in Fortitude Group Holdings, LLC, whose group companies operate as Fortitude Re (formerly DSA Re) from American International Group, Inc. (AIG) The transaction was first announced on August 1, 2018. Part of this deal included Fortitude Re inking an investment management agreement (IMA) whereby US$ 6 billion of assets will be committed into a variety of Carlyle investment strategies.

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RDIF, Indorama Corporation, and Yadran Oil Ink Joint Investment in Tartarstan

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The Russian Direct Investment Fund (RDIF), and Singapore-based Indorama Corporation Pte Ltd, a chemical corporation in Asia, and JSC Yadran-Oil, the company authorized by the Government of the Republic of Tatarstan, have agreed to jointly implement investment projects in Russia. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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