China fund sees opportunity in global instability

By Zhou Xin

SHANGHAI (Reuters) - Global economic instability has created huge investment opportunities for China Investment Corp (CIC), but the sovereign wealth fund will be careful not to destabilize countries where it operates, its head said on Friday.

CIC paid $5 billion in December for a stake in U.S. investment bank Morgan Stanley (MS.N: Quote, Profile, Research, Stock Buzz) but has otherwise kept its powder dry as Western financial institutions have sought to replenish capital depleted by big subprime credit losses.

"The current international market turbulence has produced unprecedented investment opportunities," said Lou Jiwei, head of the $200 billion sovereign wealth fund, established last September to earn higher returns on part of China's vast official foreign currency reserves.

But Lou told a financial conference in Shanghai that CIC would not try to take advantage of the turbulence by acting as a hedge fund and betting on the performance of the economies of individual countries.

"In the 1990s, some hedge funds exploited defects in the macroeconomic policies of some emerging economies and attacked them, which damaged their economies and caused hardship for people," he said.

"CIC will certainly never do a similar thing."

The fund's officials have said as much as $90 billion of its initial allocation of $200 billion could be earmarked for investment overseas.

The rest is being spent domestically on strengthening the balance sheets of banks and other financial institutions.