“How’s the situation in China?”

Re investment losses? I guess no one knows, except people with access to polling data (or a similar process of surveying popular sentiment). But you suggested that the PRC public might be particularly sensitive to this. My above question to you was then ( taking into account the various calculations of the high cost [per Singapore capita (dependent on citizenship etc status) of Temasek’s altruistic investment strategy) why a similar question might not be asked wrt , for instance Singapore (and taking into account that Singapore has, a democratic political process, albeit with a traditionally dominant party that has not yet seen gvt rotation. Your following comment is appreciated and informative. If you do not mind, a little more about the recent developments re Singapore’s Sovereign wealth:

What I find paradoxical is that apparently Temasek (according to Spore NOT a SWF) has sold (at a loss) its Merrill/BoA, Barclays investments, whilst GIC (THE Spore SWF) kept its UBS and Citigroup, at least, that is what I believe has happened. When all these investments were made, I thought that this was maybe more than an opportunistic gamble, that it would be supportive (and thus strategic) of Singapore’s financial services development strategy. All these are very important players in the private banking and FX markets. Buying these stakes would be unorthodo
x, but not necessarily without vision. In addition some of these investments were structured in a rather defensive way.

But the questions are (a) how did those investments comply with the Temasek Charter
(b) why did some investments end up in GIC and others in Temasek
(c) why did Temasek take losses and not GIC?

I have a strong feeling that the investments in question blurred the SWF/non SWF line and in addition the Temasek ones conflicted with the Temasek Charter, whilst the GIC ones if indeed strategic did not quite comply with a purely “return-oriented” SWF, as GIC purports to be…

It looks like we are going to have an interesting political year in Asia, with controversy in China, a possible “democratic transition” in Japan, Unresolved succession questions in Thailand and Singapore, precarious equilibrium in Malaysia. The only bright spot is Indonesia -and there terrorism erupts again (or not). I have not seen anything like this since the early/middle 1990s

Let’s remember that happened because the powers-to-be are mucking around with our investment returns, and Uncle Sam liked it that way!

Course it’s true that interest rates will not attract equity investors, if there is an equity boom going on somewhere, but still we are told that some percentage of our national portfolio s/b in fixed income.

I think the main shortcoming of the market/ political debate over sovereign funds was the failure to connect that debate with the debate over imbalances. the connection is real — read a (good) bank of spain paper that argues that we should talk about sovereign investors, not sov. wealth funds or central bank reserves. In both cases, governments built up foreign assets and in the process financed a US deficit that otherwise wouldn’t have been financed. Take China. If the CIC raises $100b by selling RMB and using the proceeds not to invest at home but to buy fx from SAFE, the net result is still a $100b rise in the foreign assets of China – and Chinese government demand for US assets when there isn’t private Chinese demand. if the buildup of foreign assets in central banks’ formal reserves contributed to the maintenance of imbalances, so did the buildup of f. assets in the hands of sov. funds.

I am curious why you would think otherwise. In a BoP sense, both are capital outflows, both came from govermennts, both offset current account surpluses and both finance current account deficit elsewhere.

I accept that national surpluses and deficits are a normal part of the world economy. But I also have argued that the size and persistance of the US deficit (and offsetting surpluses in asia/ the oil exporters) was dangerous — and that it wasn’t a market outcome, but rather the result of government policies that maintained net inflows to the us when private investors wanted to finance the fast growing emerging world, not the slow growing (former?) hegemon.

The public in singapore, I can’t speak for, but there will be discontent obviously – how apparent that discontent is depends on whether the elections take place later this year or next; people are too busy worrying over their jobs to really care intensely about the billions they are unlikely to see in their lifetimes. Besides, the high drama of management shifts are enough to drive the gossip mills for some time? How’s the situation in China?

is it really fair to expand your analysis of SWFs to include reserve managers, to conflate the 2 might seem tempting in certain cases ( which will not be elaborated on here but most people know what is referred to right?) but in all cases?

to state that these funds arise out of imbalances (which are seen as destabilizing) makes these institutions which run them inherently destabilizing is clever sophistry but sophistry nonetheless. No economy can ever be perfectly balanced , equilibrium is a theoretical concept. Imbalances will always exist in the here and now- in the long run, we are all not quite part of the equation as keynes put it – the negative connotations associated with imbalances really depend on whose perspective you are adopting.

“Not an apologist but could u offer a look at matters from the view of these SWFs? After all, presumably those who did take on market risk via high profile investments did lose significant amounts of money and the public (particularly in the case of China) aren’t likely to forget that any time soon.”

Do you think that the public in, for instance, Singapore, will be more tolerant of “high profile investments losing significant..” than the public in China?

exchanging 14Trillion dollars (trash) for toxic waste (trash) matters? may be stupid Chinese will buy toxic waste (trash), get more dollar (trash) or more t-bill (trash), or long-date treasury (trash). See all those stupid Chinese collecting trash on street like is treasure, it is like is in their DNA?

judy — i think there are a couple of issues here.

First, SWFs oversold themselves. They claimed to be stabilizing global markets (indeed, so stabilizing that they didn’t need to reveal any information about themselves). That set up a high bar, one that they couldn’t (in my view) meet. They should have argued that they were a way of stabilizing their own economies, not the global economy. That claim though would raise questions about their investment strategies, especially their risky investments designed to collect liquidity premia and the like. if you need to perform a stabilizing function, you need assets that hold value/ are liquid in a shock — which wasn’t where most funds were going in the boom.

and then there are a couple of very meta issues. Most SWFs arose from policies that sustained imbalances (reserve growth, not distributing the oil windfall broadly but instead saving it centrally, etc). If imbalances are ultimately destabilizing, how can funds that arose to invest the surpluses associated with the imbalances be stabilizing? and are oil flows into equities intrinsically pro-cyclical, as oil prices tend to rise with global growth — and equity prices tend to rise with global growth. that implies more Oil SWF demand for equities when oil prices and equity prices are both high. there are a set of hard questions that were shunted aside by the assertion by the big swfs that they were stabilizing, which generally was used to foreclose debate.

finally, the most destabilizing actions in the crisis came not from swfs, but from plain old central bank reserve managers — who pulled large sums out of the banks/ stopped buying agencies and thus contributed to the funding difficulties facing a host of intermediaries. this wouldn’t matter in a world where central banks were small, but in the current world it mattered — and frankly, it would have contributed to an even bigger crisis if not for the offsetting actions of the fed.