Canadian fund eyes bigger role in China

CPPIB bullish on its growth prospects despite current market uncertainties

Canada Pension Plan Investment Board will expand its exposure in the Chinese market despite uncertainties like a weaker yuan and greater market turbulence next year, a top official said.

CPPIB, which manages one of the world's largest pension funds, has total assets of $205.7 billion under management as of Sept 30, reiterated its commitment to China by investing $500 million in the Postal Savings Bank of China.

Mark Machin, head of international for CPPIB, told China Daily in a recent interview that the fund will consider increasing its holdings in the bank if the initial investment "goes well".

Despite rising market anticipations of a weaker yuan, Machin said the fund's investment strategy will continue to be long-term and driven by China's economic shift toward a consumption and service-based growth model.

"As long as the currency depreciation is modest, we'll not change our view of investing in China," he said.

The Canadian fund has been investing in China since 2008 as a key market to diversify its investment portfolio and to offset the volatile global market conditions.

CPPIB has about $10 billion invested in China and manages a quota of $1.2 billion approved by the Chinese regulators under the Qualified Foreign Institutional Investor program in the Chinese equities market.

The Canadian fund has invested $314.5 million in China's e-commerce giant Alibaba Group Holding Ltd since 2011. Last year, it formed a joint venture with China's largest residential developer Vanke Co Ltd and will invest $250 million in the country's real estate market.

Machin said the Canadian fund will continue to grow its real estate investment in China "selectively and carefully" as some markets have been oversupplied while seeking more allocation in both private and public equities.

The fund is also planning to enter China's interbank bond market as the monetary authorities are liberalizing the domestic credit market where CPPIB has almost "zero exposure".

The difficult market conditions this year have hammered investment gains of CPPIB, which achieved a modest 1.5 percent net investment return in its second fiscal quarter.

While anticipating rising market volatilities due to the divergence in the monetary policies of the world's major economies, Machin said he would expect lower investment returns in fiscal 2016, compared to 18.7 percent the fund achieved in the past fiscal year.

He also warned about substantial asset price adjustment in the United States market as investors have not been factoring in "enough risks" in the interest rate hike by the Federal Reserve.

BlackRock Inc, the world's largest asset manager, held similar view toward the global markets, believing that volatilities could rise again after the summer's global equity sell-off.

"Even without any shocks, volatility is likely to rise," Russ Koesterich, global chief investment strategist with the BlackRock Investment Institute said in a recent report, noting that exposure to quality companies such as established tech and healthcare firms could help offset the rising volatilities.