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Where do you invest when you have $2.4 trillion in foreign exchange of reserves (and growing) and you're already overweight U.S. Treasury bonds? The China Investment Corporation (CIC), a Chinese sovereign wealth fund, gave us a glimpse of the answer this week with its first 13-F filing with the SEC. The document, which lists 84 holdings in U.S.-traded shares with an aggregate value of $9.6 billion, makes for very interesting reading and suggests China is placing bets on some huge trends.
Although the filing is incomplete and covers only a small portion of the $300 billion fund's investments, it highlights China's efforts to diversify out of the dollar. The iShares MSCI Emerging Market Index ETF (NYSE: EEM ) and the iShares EAFE Index ETF (NYSE: EFA ) are among the top 10 filings listed in the index [EAFE: Europe, Australasia and Far East].
The bull in an energy shop
CIC also appears to be betting on a trend of which China is arguably the largest driver: increased demand for energy and commodities. No one is better placed than China to understand the rise in commodity/energy demand from emerging economies. Last year, it became the largest buyer of Brazilian exports, and the largest trading partner of Australia ... and probably of Iran. All three nations are major commodity/energy exporters. The iShares S&P Global Materials ETF and the SPDR Energy Select Sector ETF (NYSE: XLE ) are the 6th and 7th largest positions listed in the filing, respectively.
Finally, if you own nearly $800 billion in U.S. Treasury securities and you're concerned about the value of the dollar, how do you hedge yourself? Gold is one option. CIC has taken significant positions in the SPDR Gold Shares ETF (NYSE: GLD ) and the Market Vectors Gold Miners ETF (NYSE: GDX ) (these positions are dwarfed by the Chinese central bank's three-fourths year-on-year increase in gold reserves).
While CIC made large investments in Morgan Stanley (NYSE: MS ) and Blackstone (NYSE: BX ) through private placements, individual investors are on a level playing field when it comes to buying the ETFs mentioned above. In fact, I'd recommend that asset allocation-oriented investors spend some time thinking about these very same themes, which are likely to have an enormous impact on asset values over the next three to five years and beyond.
China is concerned about the value of the dollar and U.S. investors should be as well. Tim Hanson explains why it's time to get out now!