On September 27th, the Red Cat Journal reported on an article in The Times of London, which speculated that China's new sovereign wealth fund (SWF) had already invested in the Hong Kong stock market. Read the article here. Now comes a denial from the company's chairman, Lou Ji-Wei. Yesterday, he said "I have not invested in Hong Kong. Some people have created rumors. I think their goal is to create speculation about this stock", referring to Hong Kong Exchange (0388.HK). But Mr. Lou did indicate he would invest in Hong Kong in the future.

Red Cat Journal's overall view of this is the same as it was in our previous article. Since China's SWF has not already invested in Hong Kong, its presence, at the margin, would be positive for Hong Kong share prices to the extent there is an extra buyer. However, the scale and targets for any investments in Hong Kong is still not clear.

China Investment Corp. was officially inaugurated on Sept. 29th and, yesterday, Mr. Lou gave his first public speech since then. The fund will manage about US$200 billion of China's US$1.4 trillion in foreign exchange reserves.

Mr. Lou's main point, however, was to calm worries that the SWF could de-stabilize the global economy, or be used to further China's political ends. In this regard, he indicated the following:

"The fund's objective is to maximize shareholders' benefit. It will be run purely on commercial principles, and political considerations will have no bearing on the investment choices."

Furthermore, he took aim at hedge funds, saying:

"The real cause of international financial market instability is macro-focused hedge funds."

Perhaps he should have added another culprit to the list: cheap debt.