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 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.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
Companies in this story: (TSX:GSPTSE, TSX:CADUSD)
The Canadian Press. All rights reserved.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
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