Whither China Investment Corp…

…many people have been asking since its investment in Blackstone last June (though possibly not in Old English cant). Now for the answer: All snuggly with Morgan Stanley, it seems.

The late-Wednesday announcement of CIC’s purchase of a 9.9% stake in Morgan Stanley is the first global move made by the sovereign wealth fund after a long stretch of inactivity following its summer purchase of USD 3 bln worth of the Blackstone IPO. That stake has since shed USd 600 million, and was followed by the SWF keeping its profile low and its investment numbers lower (not counting some quiet domestic investments).

What exactly is afoot with the investment? Keith Bradsher calls it an “abrupt shift in strategy,” explaining that in late November Lou Jiwei, CIC’s head, said that investment will focus on “financial instruments like index products.”

Another thing: Morgan Stanley, of course, has taken a several-billion-dollar hit from the subprime mess. But experts are already pointing out that this is hardly a great magnanimous bailout of Morgan Stanley given the size of its total market capitalization (in the USd 50 billions). Still, it is a significant enough investment to stir curiosity about whether US government officials will ratchet up the protectionist rhetoric, as some had done with Huawei-3com and, less recently, of course, Unocal. Dealbook makes a good point on this:

“For both Citi and Morgan Stanley, the recent transactions guarantee that the overseas investor who is supplying buckets of cash won’t become an actual shareholder for a few years. That gives lawmakers and skeptics ample time to get used to the idea.” (The Citi part refers to Abu Dhabi’s investment last month in Citigroup.)

So. Strategy…or opportunism? Bradsher’s reporting about the suddenness of the deal squares more with the interpretation that this is a move of studied opportunism than of carefully crafted strategy. Though as I pointed out in a previous post on the CIC, who knows what evil lurks in the hearts of non-transparent sovereign wealth funds?

Gwynn Guilford