Wednesday, December 19, 2007

Morgan Stanley Posts Loss, Sells Stake to China

Morgan Stanley reported a steeper- than-forecast loss after $9.4 billion of writedowns on mortgage- related holdings and received a $5 billion cash infusion from state-controlled China Investment Corp.

A rather special phenomena in the current credit crisis is that the troubled institutions are turning to the reserve-rich developing governments for capital infusion. Notably China (Bear and now Morgan), Singapore (UBS) and Abu Dhabi (Citi). While the more traditional "white-knights" such as Warren Buffett have not shown up in the headlines much.

This could mark a sea-change in the emerging market investing paradigm: instead of being driven into the boom-bust cycle by FDI, now these EM economies are in the driver's seat investing their own capital elsewhere. Can they pass the road test? Guess we have to wait and see...