China Investment Corporation [CIC], the country’s $200 billion sovereign wealth fund, is reportedly investing up to $2 billion in the American housing market via the Public-Private Investment Plan [PPIP] (we’re a bit surprised that CIC is eligible for the program), as it eyes a property market recovery – news service Reuters reported Monday, citing two people with direct knowledge of the matter.
CIC plans to buy toxic mortgage-backed securities [MBS] because it sees this particular type of investment as a safer bet than buying into the Fed’s Term Asset-Backed Securities Loan Facility [TALF], Reuters said. Compared with TALF program, the new and smaller PPIP, which combines taxpayer money with private capital to buy as much as $40 billion in toxic securities from banks, focuses on safer toxic securities. In addition, these type of securities have AAA ratings and are debts-guaranteed by the FDIC.
“In this case, CIC feels safer to invest and the safer it feels, the more confident it will naturally feel about its investments, as well as in the prospects for the U.S. economy,” said one of the sources.
A relatively hefty injection from China, which continues to seek safer and more profitable U.S. investments strategies, would certainly be welcome news for the housing sector since it would help the U.S. take toxic MBS off the books of banks.
Set up in 2007 and capitalized by Beijing, CIC’s $200 billion fund is part of China’s roughly $2 trillion of foreign exchange reserves, and the majority of its reserves are in U.S. government bonds.
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