UPDATE 2-Norway oil fund to invest more in China, urges openness

Fri Oct 25, 2013 6:00pm IST

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* Will not address tax avoidance with Google, Apple, Starbucks

* Sharply cuts French, Canadian government bond holdings

* Hikes holdings in Mexican, Brazilian, South Korean debt

* Returns 5 pct in Q3, in top 10 of fund's best quarters

By Joachim Dagenborg and Gwladys Fouche

OSLO, Oct 25 (Reuters) - Norway's $810 billion sovereign wealth fund, one of the world's biggest investors, will increase its investments in China by 50 percent to $1.5 billion and would like to do even more, its chief executive told Reuters.

The head of the fund, a major investor in Google, Starbucks and Apple, also said on Friday he would not take up the issue of tax avoidance with the firms it invests in, despite the fund's ethical profile.

The fund, which invests Norway's vast surplus of oil money, is the world's richest sovereign wealth fund and holds about 1 percent of all global equities.

It has been shifting away from European assets towards Asia and emerging markets to seek higher returns. Investing in the world's second-largest economy is a key part of that strategy.

But until recently it was only allowed to invest up to $1 billion in China. This has now increased to $1.5 billion.

"We want to invest considerably more in the Chinese market," Yngve Slyngstad said in an interview. "We have applied (to China's authorities) for a bigger quota (than $1.5 billion) but we have not been able to receive it."

He urged China to open its domestic markets more to foreign investors: "It is in China's own interest, as the world's largest exporter of capital, to let ... investors in when they also want to invest in other countries."

TAX AVOIDANCE

The fund, worth some $160,000 for every man, woman and child in Norway, invests in about 7,500 companies worldwide.

It bans investments in some industries - tobacco, nuclear arms, anti-personnel landmines and cluster bombs - and focuses in discussing with the firms it invests in on issues such as children's rights or the equal treatment of shareholders.

Tax avoidance has become a growing ethical issue recently, with multinationals such as Google, Apple and Starbucks under scrutiny for the way they pay taxes in the countries where they operate. They have denied any wrongdoing.

Slyngstad said he would not take up the issue with companies the oil fund invests in, adding that international accounting standards should be clearer.

The fund is Apple's 10th-biggest investor, with a stake of 0.80 percent, while the tech firm is the fund's eighth-biggest equity holding.

The fund is the 18th-biggest investor in both Starbucks and Google, in which it holds stakes of 0.81 percent and 0.80 percent respectively.

"We will not work with the individual companies on this issue," Slyngstad told Reuters. "We will work towards the standards that apply to all companies.

"It is important to agree on international accounting standards in this area so that we have clear rules for how internal pricing takes place.

"This must be a work of international cooperation between countries and organisations that make international accounting standards," he said.

MEXICO UP, FRANCE DOWN

In the third quarter, the fund's portfolio returned 5.0 percent, beating its own benchmark index by 0.1 percentage point. That put July-to-September among the 10 best performing quarters for the fund.

Reflecting a growing focus on emerging markets, it bought more bonds issued by booming emerging economies in the third quarter but dumped French and Canadian debt.

Among the biggest changes in the fund's portfolio was a 28-percent increase in its holdings of Mexican government bonds. It also increased purchases of Brazilian and South Korean bonds, now its ninth and 10th biggest debt holdings respectively.

The fund's sales of French and Canadian government bonds pushed both countries out of its top 10 holdings, from fifth and 10th place respectively in the second quarter.

Between April and June, it had dropped British government bonds in favour of Japanese paper and increased the share taken by equities in its investment portfolio.

The fund publishes the list of its top 10 government bond holdings only.

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