China’s Redirected Foreign Investment Could Help Latin America’s ETFs

by Hongwei Shang on September 25, 2008

in News

by Tom Lydon

China’s recent $250 million decision could help Latin America-related exchange traded funds (ETFs).

China Investment Corp. (CIC) has decided to inject $200 billion into their sovereign wealth funds, and $250 million of that is going toward emerging markets, reports Irwin Greenstein for Seeking Alpha. It turns out China must diverge from the falling dollar and tap into greater reserves such as Latin America, which can generate the energy necessary for China’s development.

CIC is responsible for managing part of China’s foreign exchange reserves, and it’s the sixth-largest sovereign wealth fund in the world. It began operations on Sept. 29, 2007. Sovereign wealth funds are huge investment organizations owned by central banks and are accountable to no one.

CIC’s emerging markets plan has two focal points:

1) Diversifying out of their $1.7 trillion in foreign-exchange reserves, mostly U.S. treasury bonds and fixed-income assets

2) Gaining control of energy reserves

Just as other dollar investors are, CIC is taking a hit as the second-largest holder of U.S. Treasury securities.

Latin American ETFs might benefit from this move toward diversification:

iShares MSCI Brazil Index (EWZ): up 0.8% year-to-date
iShares S&P Latin America 40 Index Fund (ILF): up 2.8% year-to-date
SPDR S&P Latin America (GML): up 0.6% year-to-date

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