Softly she goes

Qatar SWF displays new prudence in pivot to Asia

Qatar's sovereign wealth fund is displaying new prudence in its pivot to Asia. The Qatar Investment Authority has announced it will join forces with China's CITIC Group to invest $10 billion in the country over five years. The tie-up reflects the challenges of putting large sums to work on the mainland compared with Qatar's traditional hunting ground in Europe. Creating value will be the tricky part.

The alliance with China's top state-owned company is the latest move by the Gulf fund as it ramps up its exposure to Asia. In October, Qatar bought a near-20 per cent in the Hong Kong operator of Sogo department stores for $616 million. Earlier this year it picked up a stake in Chinese e-commerce giant Alibaba and invested in new partner CITIC as the Chinese company completed a back-door listing on the Hong Kong stock exchange. Past investments include stakes in Agricultural Bank of China (Agbank) and in privately-held CITIC Capital.

Qatar's decision to climb into bed with a state-controlled partner reflects the limited opportunities big funds have to invest in China, especially those trying to write large cheques. Even buying Chinese stocks is not straightforward. After waiting two years, Qatar recently received a $4.9-billion investment quota to access China's domestic capital markets. That's still a small sum for a country that the International Monetary Fund estimates will generate a current account surplus of $57 billion in 2014.

While Qatar continues to make acquisitions and direct investments in the West, it appears to be taking a softer approach in Asia. That reflects a wider recalibration of Qatar's foreign policy to a more measured style under the new ruler who took power in June last year.

The challenge will be to make its new partnership turn a profit. China's state-owned entities typically lag their private sector peers when it comes to creating value. Just take Agbank. The lender's Hong Kong-listed shares - of which Qatar owns 17 per cent - have underperformed the benchmark Hang Seng index by five per cent since Agbank listed in 2010. Though Qatar's new approach may be more prudent, success is far from guaranteed.