Abstract
This paper addresses the challenging problem of selecting target country for future Sovereign Wealth Funds’ (SWFs) asset allocation to hedge the industry risk, which is rarely studied in the field. The target country selection includes which country and how much to invest to obtain the return objective and minimize the risk of these funds. In terms of the industrial perspective, the home country as the investor should consider SWF as part of its budget to make decision in long term. In order to control the risk, this paper measures the similarity between the home and the recipient country of SWF investment. The industrial risk of SWFs’ recipient country is also taken into consideration which is measured by concentration ratio. Based on an analytical process of target country selection, the paper finds that Kazakhstan, India, Australia, Greece, Spain, United States, Austria, Portugal, Peru, Netherlands are the top 10 countries that China should consider as its investment priorities.
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