Newfound Profits in Sovereign Wealth Funds

A little-known report by the U.S. government reveals how China’s enormous investment fund can upset the world’s financial markets in its favor. For individual investors, however, this Chinese investment fund serves as a key indicator of where to put your money for the greatest potential profits.

But you must map out every move of this closely guarded fund and jump into the same markets it does before other investors.

And following this Chinese fund -- a Sovereign Wealth Fund (SWF) -- could be one of the safest ways to turn global opportunities into a personal fortune, provided your timing is on target.

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Newfound Profits in Sovereign Wealth Funds: What a Sovereign Wealth Fund is All About

Sovereign Wealth Funds are generally managed by a country’s central bank. Their mission is to find a reliable rate of return that could be used for further domestic development.

SWFs are beneficiaries of countries with very strong economies. You’ll typically find the biggest SWFs in countries rich in raw materials such as oil, natural gas and precious metals.

You may have read about SWFs through their investments in several Wall Street financial firms including Citigroup, Morgan Stanley and Merrill Lynch.

In the case of China, the SWF is funded by the country’s enormous balance of trade with the U.S. and the rest of the world.

Today, China is the world’s manufacturing engine. The country must invest that vast trade surplus, most of which is in rapidly declining U.S dollars.

In response, China’s SWF, called the China Investment Corp. (CIC), made a crucial decision on where to invest. CIC’s obscure and concise announcement clearly points investors to a powerful long-term opportunity that could easily surpass any American returns over the next 10 years.

Newfound Profits in Sovereign Wealth Funds: China’s Secretive SWF Tips Its Hat

Because we’ve been tracking CIC and other major SWFs, the announcement immediately appeared on our radar. By contrast, most news outlets buried this important piece of breaking news (or completely ignored it), giving our readers a first-move advantage.

The release explained how CIC would, for the first time, start investing some portion of its $200 billion in assets into emerging markets. The payoff could be enormous for American investors who can track this CIC development.

This important announcement represents a departure for Beijing -- and a beacon of opportunity for emerging-market investors. With Beijing’s approval for cautious risk-taking in emerging markets, CIC has increased its ability to sway these growing economies. But CIC will likely keep these investments very close to the vest, being aware of the political controversies sparked by its conspicuous investments.

Newfound Profits in Sovereign Wealth Funds: Pinpoint Timing With China’s SWF

CIC is an excellent case in point. It usually announces forthcoming investments shortly before the financial transaction is to take place and afterwards alludes to the completion of the transaction. But CIC rarely issues statements about an investment on the day the transaction takes place. That’s why it’s vital to be on the pulse of CIC.

Due diligence is your passport to profits in tracking every move by CIC. Miss that first-move advantage and you could miss the greatest possible gains of an early entry. By following on the heels of these multibillion-dollar cash infusions, investors can enter a market as it’s ready to take off.

For readers unfamiliar with emerging markets, the term emerging markets is used to describe a country’s rapid economic development, and they present some of the best investment opportunities for people with a penchant for global investing. Examples of emerging markets include Brazil, Russia, India and China -- or the so-called “BRIC countries.”

But other emerging markets represent the biggest potential returns. We’re talking about countries such as Vietnam, Peru, Kazakhstan, South Africa… those up-and-coming economies able to rapidly capitalize on the global boom in commodities.

Newfound Profits in Sovereign Wealth Funds: Newfound Wealth

With their newfound wealth, emerging markets nurture the growth of a consumer-driven middle class. Their infrastructures (roads, airports, financial centers and communications networks) tend to be state-of-the-art, and they immediately leapfrog into the 21st century.

In conjunction with this growth spurt, the governments of emerging nations adopt ambitious new regulations to attract billions from foreign investors. Once this happens, a new level of transparency makes investors more comfortable, increasing the influx of capital.

Newfound Profits in Sovereign Wealth Funds: The Building Blocks of Industry

What concerns the U.S. government is China’s influence on these emerging markets -- as evidenced in this obscure report mentioned earlier. China has one of the fastest-growing economies in history. It’s desperate for the raw materials to make steel, cement, electricity and other building blocks of a modern industrial giant.

The organization that China uses to front this influence peddling in emerging markets is its own sovereign wealth fund, the CIC.

As an individual investor, you would want to know about these investments immediately. Armed with this market intelligence, you could easily follow in the footsteps of CIC and watch your holdings grow -- with little potential long-term risk.

Newfound Profits in Sovereign Wealth Funds: One Way to Play SWFs

That’s because you could buy, for example, ETFs whose holdings are the best equities in these small markets. Imagine how a market could move if CIC suddenly decided to invest a few hundred million into some of the listed companies. Investors who get in early stand to reap gains that typically reward a first-move advantage.

It’s this kind of authoritative sway that concerns the U.S. Foreign Affairs, Defense and Trade Division.

Newfound Profits in Sovereign Wealth Funds: Inside a Little-Known Government Report

Earlier this year, one of its Asian analysts published a report on CIC that we managed to obtain. The report identified CIC’s emerging-market initiatives as twofold: (1) diversifying out of its $1.7 trillion in foreign-exchange reserves, which are mainly in U.S. Treasury bonds and other fixed-income assets; and (2) gaining greater control of desperately needed energy reserves.

As the report asserts, “China could use the CIC as a mechanism to pursue geopolitical objectives.”

Newfound Profits in Sovereign Wealth Funds: A Special Kind of Windfall

The U.S. Asian analyst noted that shifts in SWF investments could potentially disrupt global financial markets and harm the U.S. economy. While this may be true, we believe that economic trends show emerging markets often benefit from the damage inflicted by inflation on the U.S. economy. Investors must ask themselves whether or not they can be receptive to this kind of potential windfall.

The U.S. intelligence report observed that “many of the CIC’s initial investments were apparently political in nature,” confirming our own speculations that energy is a top priority in the new emerging-market investment strategy.

In fact, the decline of the dollar could mean that China would no longer need to sit on U.S. government debt, according to report. Instead, Beijing could easily allocate more funds for emerging markets, giving investors an even larger opportunity.

China's net purchases of US Long-term Debt- 12 months

We expect that CIC could receive more money for emerging markets. It all comes down to a three-letter word -- oil.

China is the world’s second-largest energy consumer. Oil comprised 20.3% of China’s total energy consumption in 2006. Coal is the prime energy source, but the pollution it spews is now a major financial drain in terms of worker productivity and environmental damage to agriculture. China is ramping up like mad its nuclear output.

Newfound Profits in Sovereign Wealth Funds: Will CIC Boost Latin Markets?

Oil, however, plays an increasingly important in China’s energy mix. Just last month the government cut oil subsidies to the growing millions of new car owners. They will be forced to pay 18% more for a tank of fuel. It’s unlikely that this move will achieve China’s goal of cutting consumption, since the country had previously been operating in an artificially regulated $80-a-barrel oil market. Given all the new shiny cars on the road, we don’t believe an extra 18% will amount to a hill of beans.

So if you make the assumption that oil will be a top priority for CIC, our compass points to a greater presence in Latin America. Since 2000, trade between China and Latin America has increased sixfold.

The business deals are not confined strictly to oil. Latin America is also rich in other commodities that China needs to continue is massive economic expansion. We’re talking about copper, iron, silver and other raw materials. But when it comes to oil in the region, China has been very active.

Here’s a quick rundown of China’s energy influence in Latin America…

China’s Shengli International Petroleum Development Co. Ltd. inked a deal with Bolivia’s state-run Yacimientos Petroliferos Fiscales. The agreements call for China to invest $1.5 billion over 40 years in Bolivia’s onshore oil and gas sector.
China’s leading refiner, Sinopec, reached a $239 million deal with Brazil’s state-owned Petrobras for construction of a stretch of a major natural gas pipeline across Brazil.
Sinopec also showed up in Cuba, where it made an agreement with Cuba’s state-run Cubapetroleo to jointly produce oil on the island in January 2005.
A Chinese-led consortium, which includes China National Petroleum Corp. and Sinopec, bought Canada-based Encana’s oil and pipeline assets in Ecuador for $1.42 billion.
In Peru, the China National Petroleum Corp. produces oil.
The China National Petroleum Corp. also operates two Venezuelan oil fields in Venezuela and has committed to spend over $400 million in Venezuela’s oil industry. The China National Petroleum Corp. is working with Venezuela’s state oil company in the Junin 4 block of the Orinoco extra heavy oil belt, the world’s largest deposit of crude oil. Chinese investments in Venezuela total more than $1.5 billion.

For investors looking to capitalize on the CIC move into emerging-market equities, Latin America seems to be a logical first step. You can do this by talking with your broker about Latin ETFs, or investigating Latin publicly-traded oil companies such as Brazil’s Petrobras (PBR:NYSE).

When this opportunity hits the news, it could be too late to reap the earliest and biggest gains that come with a first-move advantage.

Our analysts here at Taipan Daily have reported from Russia, Thailand, Albania, Peru, and many other investment hot spots overlooked by Wall Street. They can show you how to turn “crisis” situations like these into lasting wealth. Get in on these opportunities now. Sign up for your FREE Taipan Daily e-letter today.