November 9, 2018 / 3:26 PM / in 10 days

UPDATE 2-Canada Pension Plan eyes Chinese assets as trade tensions hit valuations

* Valuations are being affected by market stresses -CEO

* CPPIB says net returns increased by 0.6 pct in Q2

* CPPIB says net assets total C$368.3 billion (Recasts, adds comments from CEO interview)

By Matt Scuffham

TORONTO, Nov 9 (Reuters) - The Canada Pension Plan Investment Board (CPPIB), the country’s biggest public pension fund, could benefit from trade tensions between the United States and China by buying Chinese assets at knock-down prices, Chief Executive Mark Machin said on Friday.

The CPPIB, one of the world’s biggest investors in real estate and infrastructure, has 8 percent of its funds invested in China and has said it expects to increase that number significantly in the next few years.

The United States and China are embroiled in a trade dispute, with both sides imposing tariffs on billions of dollars worth of the other’s imports.

Machin said that, although the trade tensions were a concern and a drag on the global economy, they could throw up opportunities if valuations of Chinese assets fall.

“The thing for us is to be patient and look for good opportunities that are arising as a result of market stress and economic stress,” he said. “I think we’ll find very interesting opportunities in China over time as this continues.”

The CPPIB, which manages Canada’s national pension fund and invests on behalf of 20 million Canadians, reported slower growth in the second quarter, hurt by the strength of the Canadian dollar.

The fund said it delivered a net investment return of 0.6 percent in the second quarter to the end of Sept. 30, down from 1.8 percent in the previous quarter.

Its net assets increased to C$368.3 billion ($279.2 billion)at the end of September, compared with C$366.6 billion three months earlier.

Machin said foreign currency exchange-rate declines relative to the Canadian dollar were the fund’s “main headwind” during the quarter.

The CPPIB, which is also a big global investor in equities and bonds, derives the majority of its earnings from overseas. The strength of the Canadian dollar, which hit a four-month high in September, means that overseas earnings are not worth as much when they are converted back to the fund’s domestic currency.

The fund does not hedge against currency movements saying that while they may impact its results in the short-term, it does not expect them to have a significant impact on its long-term performance.

In May, CPPIB reported an 11.6 percent return on investments in its latest fiscal year but warned that double-digit growth was not sustainable with competition for assets intensifying.

$1 = 1.3190 Canadian dollars Reporting by Matt Scuffham Editing by Chizu Nomiyama and Susan Thomas

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