Investment Ideas: China’s SWF to Invest via the BAMBOO Network?

``The rise of China -- and of Asia -- will, over the next decades, bring about a substantial reordering of the international system. The center of gravity of world affairs is shifting from the Atlantic, where it was lodged for the past three centuries, to the Pacific. The most rapidly developing countries are in Asia, with a growing means to vindicate their perception of the national interest.”- Henry Kissinger, a former secretary of state, is chairman of Kissinger Associates

Last week we spoke of the growing significance of Sovereign Wealth Funds (SWFs) in cushioning global markets, where excess foreign exchange reserves of developing countries have been partially finding their way into the US financial assets and to other investments in some parts of the world.

Yes, lately there have been reports that Citigroup and Merrill Lynch have been seeking additional funding ($14 billion and $2 billion, respectively) from again-emerging markets via sovereign wealth funds (telegraph) and investors including Prince Alwaleed bin Talal (telegraph). The recycling of surplus foreign exchange reserves appears to be building momentum. In some estimates SWFs are expected to grow to about $12 trillion in 2015 (telegraph) which makes SWFs a potent player in the financial markets.

Lately, courtesy of analyst Martin Spring, we read that one of the potential avenues where SWFs could deploy their funds could be through the Bamboo Network or the Overseas Chinese, mainly through privately owned Chinese companies throughout in Asia.

According to Martin Spring (our emphasis),

``There’s a very good chance that much of the capital China is planning to invest abroad to diversify its holdings could be channelled into “Asia’s most powerful yet invisible force – the Bamboo Network,” suggests Bank of America’s chief market strategist, Joe Quinlan.

`` “The network consists of hundreds of companies across Asia owned and managed by Chinese entrepreneurs with extensive ties to their ancestral homeland,” he says.

`` “Many of these companies dominate the private sectors of Singapore, Thailand, Malaysia, Indonesia, Taiwan, Hong Kong, the Philippines and Vietnam.

`` “Large swathes of industry (transportation, banking, retail, construction and manufacturing) are under the control of the overseas Chinese.” Some businesses have grown from small family-owned enterprises into “enormous publicly-traded conglomerates.”

``Over the past quarter-century the Chinese diaspora has been the largest investor in China, sharing the same culture, language and business norms.

``Now the flow of capital is about to reverse. “China’s investment agency is likely to exhibit a regional bias towards companies run and managed by overseas Chinese executives.

``This will not only serve the objective of yielding higher investment returns, but also serve China’s broader strategic interests of creating a pan-Asian economy with the mainland at its core.

`` “The big winners are likely to be large-cap companies run by overseas Chinese entrepreneurs and, by extension, the equity markets of Southeast Asia.”

Need we say more?