CPPIB keen on Asia amid geopolitical unrest, controversy over Chinese investments, which have lost some of their shine
The Canada Pension Plan Investment Board’s US$800-million investment in India’s Flipkart Group this week is more than a bet on the e-commerce grocery delivery company ahead of an expected IPO. It is also something of a statement that the investment manager for Canada’s national pension scheme is still keen on and active in Asia despite recent geopolitical unrest and controversy, particularly over its investments in China.
The CPPIB fund’s allocation to Asia rose to more than a quarter of net assets last year, up from less than 18 per cent in 2017, and “China and India are critical” to the pension manager’s plan “to allocate up to one-third of the Fund in emerging markets by 2025,” said Agus Tandiono, managing director and head of fundamental equities in Asia for CPPIB.
But some have questioned the strategy at both the country and company level. Relations between the Canadian and Chinese governments have grown frosty since the arrest of Huawei executive Meng Wanzhou in Vancouver in 2018 at the behest of the United States, exacerbated by the subsequent detention of two Canadians in what many view as a retaliatory move.
At the same time, investments in China that once gave CPPIB bragging rights have lost some of their shine.
A well-timed investment in China’s e-commerce company Alibaba paid off in 2014, at least on paper, when the company went public with a value of US$25 billion. But the fortunes of founder Jack Ma have taken a hit recently after public comments he made appeared to take aim at Chinese regulators. A planned US$35-billion initial public offering for Ant — a fintech company in which Alibaba and its key investors have a stake — was pulled last year. It could still go ahead, but analysts have pegged the value at about 60 per cent less than it was expected to fetch. Chinese regulators are also probing Alibaba as part of a wider crackdown on tech monopolies in that country.
CPPIB’s investments in China alone represented around 11 per cent of the portfolio and were on track to increase to 20 per cent by 2025, according to a transcript of a parliamentary committee hearing last June.
Senior executives of the Canadian pension faced hours of questions from members of the committee, including some pointed ones about its investments in China. Conservative member of parliament Michael Cooper, who was on the standing committee on finance at the time, asked CPPIB executives if they were worried about arbitrary regulatory or government decisions over corporate structure affecting their investments in China, including Alibaba. He also asked questions about Ant and its trouble making a U.S. acquisition due to national security concerns, and noted that other large pensions based in the United States had recently halted all investments in China.
CPPIB executives defended continued investment in China, stressing the importance of that country to the fund’s geographic diversification and the potential for returns in developing markets with a growing urban middle class.
Just over a month later, though, the Canadian pension giant took a significant step to beef up its investment capabilities in India. Anuj Girotra, who had spent 12 years leading Capital Group’s private markets business in India, was hired to lead CPPIB’s efforts investing in public equities and companies on the cusp of going public there. While other executives on the team are based in Hong Kong, Girotra is based in Mumbai.
Sources familiar with CPPIB’s strategy say his hiring helped lay the groundwork for the investment in Flipkart, a move big enough to dispel any notion of a retreat from the wider region, but that may also signal an evolution of their strategy.
“Asia is a diverse region with many different markets,” Tandiono told the Financial Post in an email. “Having on-the-ground presence and knowledgeable partners allow us to identify and pursue good investment opportunities.”
With a major North American player like Walmart — which has been gearing up to battle Amazon for global e-commerce market share — on board as Flipkart’s majority owner, the latest investment in this area has an added layer of reassurance for CPPiB.
The US$3.6-billion funding round was led by CPPIB, Walmart, SoftBank and GIC, and gives the online shopping and grocery delivery company a value of more than US$37 billion.
The investment group also features some familiar names from past CPPIB funding transactions around the world. For example, the Canadian pension manager entered a joint venture with GIC in 2018 to acquire a blue-chip office building in Seoul for US$380 million. Japan’s SoftBank, meanwhile, was reportedly poised to sell its controlling stake in renewables business SB Energy to CPPIB for more than US$400 million, but that deal was called off in the spring.
“We’ve previously worked with several of the investors in the Flipkart transaction, across geographies and transactions,” Tandiono said.
“Partnership has been an important part of our global strategy.”
Financial Post
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TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.
The S&P/TSX composite index was up 34.91 points at 23,736.98.
In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.
The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.
The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.
The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.
This report by The Canadian Press was first published Sept. 17, 2024.
Companies in this story: (TSX:GSPTSE, TSX:CADUSD)
The Canadian Press. All rights reserved.
TORONTO – Strength in the base metal and technology sectors helped Canada’s main stock index gain almost 100 points on Friday, while U.S. stock markets climbed to their best week of the year.
“It’s been almost a complete opposite or retracement of what we saw last week,” said Philip Petursson, chief investment strategist at IG Wealth Management.
In New York, the Dow Jones industrial average was up 297.01 points at 41,393.78. The S&P 500 index was up 30.26 points at 5,626.02, while the Nasdaq composite was up 114.30 points at 17,683.98.
The S&P/TSX composite index closed up 93.51 points at 23,568.65.
While last week saw a “healthy” pullback on weaker economic data, this week investors appeared to be buying the dip and hoping the central bank “comes to the rescue,” said Petursson.
Next week, the U.S. Federal Reserve is widely expected to cut its key interest rate for the first time in several years after it significantly hiked it to fight inflation.
But the magnitude of that first cut has been the subject of debate, and the market appears split on whether the cut will be a quarter of a percentage point or a larger half-point reduction.
Petursson thinks it’s clear the smaller cut is coming. Economic data recently hasn’t been great, but it hasn’t been that bad either, he said — and inflation may have come down significantly, but it’s not defeated just yet.
“I think they’re going to be very steady,” he said, with one small cut at each of their three decisions scheduled for the rest of 2024, and more into 2025.
“I don’t think there’s a sense of urgency on the part of the Fed that they have to do something immediately.
A larger cut could also send the wrong message to the markets, added Petursson: that the Fed made a mistake in waiting this long to cut, or that it’s seeing concerning signs in the economy.
It would also be “counter to what they’ve signaled,” he said.
More important than the cut — other than the new tone it sets — will be what Fed chair Jerome Powell has to say, according to Petursson.
“That’s going to be more important than the size of the cut itself,” he said.
In Canada, where the central bank has already cut three times, Petursson expects two more before the year is through.
“Here, the labour situation is worse than what we see in the United States,” he said.
The Canadian dollar traded for 73.61 cents US compared with 73.58 cents US on Thursday.
The October crude oil contract was down 32 cents at US$68.65 per barrel and the October natural gas contract was down five cents at US$2.31 per mmBTU.
The December gold contract was up US$30.10 at US$2,610.70 an ounce and the December copper contract was up four cents US$4.24 a pound.
— With files from The Associated Press
This report by The Canadian Press was first published Sept. 13, 2024.
Companies in this story: (TSX:GSPTSE, TSX:CADUSD)
The Canadian Press. All rights reserved.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
Companies in this story: (TSX:GSPTSE, TSX:CADUSD)
The Canadian Press. All rights reserved.
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