China Looking to Invest in UK Infrastructure

The Financial Times reported that the Chinese may soon start investing in the overseas infrastructure sector.

Lou Jiwei, the head of the Chinese sovereign wealth fund called China Investment Corp (CIC), wrote in the Financial Times that infrastructure in the United States and Europe is badly in need of investment and that his firm was particularly interested in the United Kingdom's infrastructure sector. If Lou backs his words with action, Chinese investment could provide a much needed spark for the British economy.

There has been growing speculation about what China will do with its huge foreign reserves as the country looks to diversify its portfolio beyond its massive holdings of American debt. In September there were rumors circulating that China would increase its purchases of Italian debt in what would have been a major show of confidence in Italy and the European Union. The move would have helped Italy reduce its borrowing costs and forced traders that have been pushing eurozone bond yields ever higher to face the possibility of massive Chinese bond purchases driving yields down.

However, not much came of the rumored plan and Chinese Premier Wen Jiabao crushed the hopes of more than a few eurozone leaders when he ended the rumors by echoing the words of German Chancellor Angela Merkel when he said that countries like Italy and Spain must "put their own houses in order" before they could expect China to risk its funds by investing in them.

This time could be different because these are not anonymous rumors. This time it's one of China's most influential financial decision makers talking openly about a specific country and sector that he's interested in investing in.

ACTION ITEMS:

Bullish:
Traders who believe that Lou Jiwei is serious about investing in the British infrastructure sector might want to consider the following trades:

• If Chinese cash goes pouring into the United Kingdom, the British pound could move higher. If this happens, then the CurrencyShares British Pound Sterling Trust (NYSE: FXB) ETF could move higher along with the British pound.

• British stocks could also see gains if the Chinese begin buying up British assets. If this happens, the iShares MSCI United Kingdom Index (NYSE: EWU) could post significant gains.

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