Public giants in private markets
Countries like China, awash in export cash, are buying into Wall Street. Do such investments have strings?
Americans wouldn't want their government owning chunks of Wall Street. Then why is it OK for governments from China to the Middle East to do so? The question needs an answer fast. Many rich governments are on a buying spree, and credit-starved Wall Street firms need cash.
The mortgage crisis of 2007 has hit US financial companies hard. The latest firm to seek a foreign-government rescue is Morgan Stanley. On Dec. 18, it gave a 10 percent stake to a newly created arm of the Chinese government, China Investment Corp., which invested $5 billion in the firm.
Last month, Citigroup raised $7.5 billion from the Abu Dhabi Investment Authority, giving the Arab Gulf sheikdom a 4.9 percent stake in the largest US bank.
Watch for more such cash infusions in private firms from so-called "sovereign wealth funds," or government investment entities. These funds go beyond the usual investments in US Treasury bonds or similar securities. Nearly 30 countries now have them, and they command about $3 trillion – yes, trillion – in assets. They may soon reach $12 trillion, or about the same value as all the companies in the S&P 500. That's a chunk of change the world's market can use, if invested wisely.
Beijing only recently decided to seek overseas investments for its $1.4 trillion in foreign currency reserves from exports. And OPEC governments that control their countries' petroleum are rolling in export dollars as oil prices near $100 a barrel.