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Potential trouble over CIC fund exposure
Sept. 16 – Investment fund company, Hua An Fund Management Co., said it might face losses after Lehman Brothers filed for bankruptcy protection in the United States on Monday.
It did not say how much might be at risk. The company is one of a number of funds operating foreign investment funds under China’s qualified domestic institutional investor or QDII program.
Hua An’s International Balanced Fund is invested in dollar-denominated principal protected structured notes provided by Lehman Brothers.
According to the International Herald Tribune, the investment house’s notes are linked to various types of assets, including bonds, shares, real estate and commodities, managed by Lehman Brothers Asset Management.
While it might face the highest loss, Hua An Fund Management Co is not the only Chinese financial institution to be hit by the collapse of Lehman Brothers.
Bank of China Ltd. spokesman Wang Zhaowen told Dow Jones Newswires that the lender is closely watching its holdings of unsecured credit issued by Lehman Brothers Holdings Inc.
According to a filing with the U.S. Bankruptcy Court, Bank of China’s New York branch is on the list of unsecured creditors owed more than US$50 million by Lehman.
“At present we have no information to disclose, but relevant departments of Bank of China have been investigating the deal,” said Wang.
Lehman Brothers, the fourth-largest investment bank in the United States, declared bankruptcy on Monday, following which, the Chinese stock market which opened on Tuesday tumbled more than 3 per cent in the opening minutes of trading.
The benchmark Shanghai Composite Index, which covers A and B shares, was down 69.90 points at 2,009.77.
The Shanghai A-share index fell 73.32 points, or 3.36 percent, to 2,109.71, while the Shenzhen A-share index was down 6.62 points, or 1.09 percent, to 600.00
China has taken prudent, calculated steps to make sure they are not too affected by the U.S. market collapse. It has avoided making major investments this year after a string of high-profile deals in 2007 lost money, the Wall Street Journal reported.
The country’s year-old fund, China Investment Corp., has been bitterly criticized for unwisely using part of its US$200 billion stockpile to prop up U.S. financial firms at a time when China’s own stock market has been in near free fall, with the benchmark index down by two-thirds since last October.
Tuesday Greater China Results:
Hong Kong down 5.44%.
Shanghai down 4.4%
Shenzhen down 1.3%
Taiwan down 9% and has government intervention to support it…
Anymore you can find on China exposure would be more than welcome especially if CIC are poised to take a big hit.
AIG just got downgraded they have significant interests in Hong Kong and China. They were founded in Shanghai and have a large (and the only) wholly owned insurance business on the mainland as well as several JV’s. If Chinese banks have partnered with them and AIG start to slide it could get messy on the mainland esp. if coupled with any CIC exposure to Lehman Brothers.
Remember the Chinese will want to save face and not look like idiots for making bad investments. Therefore whatever loss is disclosed, multiply it by three and you’ll be about right.