Market, experts hail Morgan Stanley deal

By Wang Xu (China Daily)
Updated: 2007-12-21 07:07

The international market sees it as a big business move and experts hail it as a deal in the right direction.

China Investment Corp (CIC), the country's sovereign wealth fund, has injected $5 billion into Morgan Stanley within three months of being set up.

"It's a good time for investment (in the US)," said Yin Zhongli, a researcher with the Financial Research Institute of the Chinese Academy of Social Sciences. "The credit crunch induced by the subprime crisis in the US could help buyers get a real bargain."

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The director of the Institute of Finance and Banking, under the Chinese Academy of Social Sciences, Li Yang, corroborated Yin. Xinhua quoted Li as saying: "It's a good time to invest in US-based financial institutions, many of which are being undervalued because of the subprime crisis."

The equity that CIC has bought could be converted into as much as 9.9 percent of Morgan Stanley's common shares in 2010. That would make the Chinese company the second largest shareholder of the US-based investment bank. The deal coincides with the first quarterly loss suffered by Morgan Stanley after it went public in 1986.

But the Beijing-based sovereign fund said: "Morgan Stanley has potential for long-term growth. This investment is made in accordance with CIC's global asset allocation strategy and is expected to realize attractive long-term returns."

CIC will, however, stay a "passive investor" and not seek a management role in Morgan Stanley.

The Chinese firm doesn't foresee any political or regulatory concerns over the investment, though.

"This agreement will provide capital for Morgan Stanley and thus strengthen one of New York's premier companies. This will help New York keep its position as the global financial center," said US Senator Charles Schumer, a longtime critic of China's currency and trade policies.

Morgan Stanley on Wednesday reported a higher-than-expected writedown of $9.4 billion in the fourth quarter, largely because of the losses in subprime mortgages and other assets. The writedown means a $3.6-billion loss for the bank in the fourth quarter.

CIC was set up with an initial capital of $200 billion from the nation's foreign exchange reserves.

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