China To Take The Reins In Funding Regional Infrastructure Projects
This Tuesday marked the last day that countries could submit their applications to become founding members of the new China-led Asian Infrastructure Investment Bank (AIIB). As of this writing, a little over 40 nations have either already been approved or have applied for membership, including strong U.S. allies such as Britain, Germany and Australia.
Notable absentees, as you can see below, are the U.S. and Japan.
Conceived to serve as an alternative to Western-dominated sources of credit such as the World Bank, International Monetary Fund (IMF) and Asian Development Bank, the AIIB will aim to invest in regional infrastructure projects ranging from energy to transportation to telecommunications.
The new development bank, which is expected to launch later this year, will have $100 billion in capital to begin with—a massive mountain of money, to be sure, but it falls far short of the estimated trillions that will be necessary to fund Asia’s astronomical infrastructure demand.
China’s creation of its own global bank highlights the country’s desire to wield more control over funding such projects. It currently commands only 5.17 percent of the vote in the World Bank and 3.81 percent in the IMF.
And so the currency wars continue to heat up. China’s move demonstrates its ongoing efforts to establish the yuan as a global reserve currency on par with the U.S. dollar. It’s no secret that the country wants the yuan to become part of the IMF’s Special Drawing Right (SDR), a composite currency unit that now consists of the dollar, Japanese yen, British pound sterling and euro. The founding of the AIIB might very well bring the country closer to realizing these goals.
A-Shares Headed Higher
Chinese stocks are currently having a moment. Mainland A-shares, as measured by the benchmark Shanghai Composite Index, are up an incredible 92 percent for the 12-month period on the back of strong recent performance in the financial, property and infrastructure industries.
There’s generally a high correlation between the A-share market and China and Hong Kong, but the A-shares have outperformed by a wide margin over the past year.
Last Wednesday the index fell a slight 0.8 percent, ending a 10-day rally that contributed 12 percent, its longest winning streak in 23 years.
Chinese policymakers have recently eased quota controls for foreign investors in mainland stocks and bonds, as they promote the yuan to be accepted as an SDR. The potential for greater inflows into the market should help the Shanghai Composite head even higher.
Our China Region Fund (USCOX) has participated in this rally through the Morgan Stanley China A Share Fund and a closed-end fund.
Please consider carefully a fund’s investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting www.usfunds.com or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Distributed by U.S. Global Brokerage, Inc.
Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk. By investing in a specific geographic region, a regional fund’s returns and share price may be more volatile than those of a less concentrated portfolio.
The Shanghai Composite Index (SSE) is an index of all stocks that trade on the Shanghai Stock Exchange.
Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the China Region Fund as a percentage of net assets as of 12/31/2014: Morgan Stanley China A Share Fund, Inc. 1.52%.
All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.
Frank Holmes is the CEO and Chief Investment Officer of U.S. Global Investors. Mr. Holmes purchased a controlling interest in U.S. Global Investors in 1989 and became the firm’s chief investment officer in 1999. Under his guidance, the company’s funds have received numerous awards and honors including more than two dozen Lipper Fund Awards and certificates. In 2006, Mr. Holmes was selected mining fund manager of the year by the Mining Journal. He is also the co-author of “The Goldwatcher: Demystifying Gold Investing.” Mr. Holmes is engaged in a number of international philanthropies. He is a member of the President’s Circle and on the investment committee of the International Crisis Group, which works to resolve conflict around the world. He is also an advisor to the William J. Clinton Foundation on sustainable development in countries with resource-based economies. Mr. Holmes is a native of Toronto and is a graduate of the University of Western Ontario with a bachelor’s degree in economics. He is a former president and chairman of the Toronto Society of the Investment Dealers Association. Mr. Holmes is a much-sought-after keynote speaker at national and international investment conferences. He is also a regular commentator on the financial television networks CNBC, Bloomberg and Fox Business, and has been profiled by Fortune, Barron’s, The Financial Times and other publications. Visit the U.S. Global Investors website at http://www.usfunds.com.