Friday, November 3, 2023

Australia’s Wealth Fund Screens Chinese Firms for US Ban Risk


The chairman of Australia’s Future Fund, Peter Costello, has announced that the sovereign wealth fund is reviewing its portfolio for Chinese companies that could be at risk of US investment restrictions. This comes as the Biden administration plans to increase scrutiny of Chinese technology firms and ban investments in some of them. Costello cited the experience of Western investments in Russia, which were written off after sanctions effectively shut foreign investors out of the country. He said that it was foreseeable that something similar could happen in China, and that the fund had gone through its portfolio very carefully to try and drop stocks. However, he added that it was important for the fund to maintain its exposure to emerging markets and China was a large part of that.

Costello’s comments highlight the hesitancy of many large money managers who are choosing to steer clear of Chinese assets due to political risks, including tension over the war in Ukraine and over Taiwan, that have increasingly seen China and the West on opposing sides. The United States placed sweeping restrictions on exports to China of American artificial intelligence (AI) chips, chipmaking tools, and supercomputers among other technologies in October. The US Commerce Department’s Bureau of Industry and Security is also announcing various Chinese companies that cannot export high-tech equipment to.

Costello gave a hypothetical scenario where Chinese-made drones might be found in Ukraine and its manufacturers were hit with US investment bans in response. He said that this stance was a prudent measure in this bifurcated world we’re going into. However, he acknowledged that the fund needed to maintain its exposure to emerging markets, and China was a large part of that.

The Future Fund was established in 2006 to cover escalating pension liabilities for public servants and rivals Australia’s largest pension funds in size. A spokesperson for the fund declined to comment on its current China-related holdings. The fund has in the past cut its exposure to emerging markets, including China, without elaborating. Costello’s comments come at a time when Australia and China are seeking to mend fences after a years-long diplomatic freeze, with Australia asking China to remove unofficial trade blockages on its exports.

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