Business Irish

Sunday 17 December 2017

State pension fund takes €10m hit as Chinese shares slump

Almost €40m of Ireland's pension reserve fund is invested in Chinese equities

Almost €40m of Ireland's pension reserve fund is invested in Chinese equities
Almost €40m of Ireland's pension reserve fund is invested in Chinese equities
Sarah McCabe

Sarah McCabe

Taxpayers have been hit with paper losses of around €10m on government investments in Chinese equities in the last fortnight - only to regain millions on Thursday and Friday.

The Irish Strategic Investment Fund, the new name for the National Pension Reserve fund, had €39m invested in Chinese stocks at the end of last year, with millions more invested in other emerging markets.

These investments have taken a beating in the past two weeks, as Chinese stocks plummeted following the publication of worse-than- expected Chinese economic data.

The data prompted the biggest sell-off of shares in the world's second largest economy since 1996, with the CSI 300, an index of China's largest companies, down a quarter in ten days. In total, Chinese shares tumbled €4.5 trillion between mid-June and late August.

Emerging markets around the world sank too - the MSCI Emerging Market index, a widely tracked index by global fund managers, used to benchmark investments in emerging countries, last week dropped to its lowest level since July 2009. Investors pulled a record amount of money from emerging market equity funds in the week to August 26 - a net €9.4bn, the largest outflow since January 2008, according to Bank of America Merrill Lynch.

About 4pc of Ireland's ISIF fund, or €264m, is invested in emerging markets, according to its last annual account. Some €39m of this went to Chinese equities. ISIF contains the money previously held by the National Pension Reserve Fund, set up to finance public service pensions but now being used to invest in the country's economic recovery. It is invested by the National Treasury Management Agency, whose chairperson is IAG chief executive Willie Walsh.

All of ISIF's top ten Chinese equity investments, which are weighted towards the emerging economy's banking and energy sectors, lost at least 10pc during the week, wiping millions in a paper loss from the taxpayer fund. This included media and technology investment group Tencent, the China Construction Bank, the Bank of China and ENN Energy.

Some of these losses were reversed towards the end of the week - but none of the investments regained their losses in full.

The rally followed interventions by the Chinese government on Thursday. Beijing banned major shareholders, corporate executives and directors from selling stakes in listed companies for six months, and ordered state-owned institutions to either maintain or boost their stock holdings.

But analysts say the rally will be short-lived. State intervention is too costly to continue and valuations are not justified given the slowing economy, according to Bank of America.

"As soon as people sense the government is withdrawing from direct intervention, there will be lots of investors starting to dump stocks again," said David Cui, China equity strategist at Bank of America in Singapore.

While ISIF has more money in Chinese stocks than any other emerging market, it also has substantial investments in other fast- developing nations.

At the end of last year it had €31m in South Korean equities, €27m in Taiwanese stocks, €20m invested in Brazilian equities, €17m in South Africa and €14m in Mexico.

ISIF is not the only fund of its type to feel the pinch; sovereign wealth funds around the world are taking a hit. Norway's sovereign wealth fund lost 5pc of its value in the past month, according to a Bloomberg report, which translates to a $40bn loss. The fund manages $840bn.

It is difficult to get a reading of the Chinese situation and difficult to understand the macro- economic information that China provides, the fund's CEO Yngve Slyngstad said.

"We get a lot of information on the micro- level - but it's difficult to get a read on the full picture of what is happening."

Sunday Indo Business

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