Singapore Singapore: sovereign securities fund GIC experienced a stable return for its last financial year, but reiterated a cautious stance in the midst of an uncertain investment climate characterized by challenges including a long-standing line of trade.
For the year ending March 31 this year, GIC's key figures for investment results, the 20-year real return, came to 3.4 per cent. According to the latest annual report published on Wednesday, 3 July.
This was unchanged from the return in FY2017 / 18, but lower than in previous years. This figure was 3.7 percent for FY2016 / 17, 4 percent for FY2015 / 16 and 4.9 percent for FY2014 / 15.
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By the question of whether a retiree under 4 percent becomes the new normal or a drop below 3 percent can happen in the coming years, CEO Lim Chow said Kiat says he "can't really predict exactly what percentages" but is cautious about the investment prospects of high valuations and a number of uncertainties that might "exist for a while".
Another factor contributing to the fall in the GIC benchmark rate is the way it is calculated.
The 20-year annual return is a "rolling" return, where the years fall and are added when the calculation window moves. Eg. The figure for FY2018 / 19 represented the average return on GIC's portfolio from April 2000 to March 2019. Next year's will measures the average return from 2001 to 2020.
Explains why the return fell below 4 per cent. For the past three years, GIC has said it is attributable to the "unusually high return" from the technology bubble time of the late 1990s, falling out of the 20-year window while the rebound fell.
This one-off effect is continuing and weighing 20-year returns in the medium term, said Mr Lim at a media briefing held a day earlier.
In US dollar nominal terms, GIC's portfolio yield was 5.5%. per. years over the last 20 years, slightly above the 5.2 percent annual return from its reference portfolio. The latter consists of 65 per cent. Global shares and 35% Global bonds. It refers to the risk that GIC can take to create good long-term returns.
At the end of last financial year, developed market shares accounted for 19%. of GIC's portfolio, down from 23 per cent. a year ago.
This corresponded to a two percentage point increase in the nominal bond and cash allocation to 39%. – the highest level since GIC began issuing annual reports in 2008.
It also increased a bit of distribution to emerging market shares from 17%. to 18 per cent and private equity from 11 per cent. to 12 per cent
Inflation bonds and real estate constitute the other asset classes in GIC's portfolio, both of which remained unchanged in terms of their composition.
Lowering exposure to developed market shares and again increasing nominal bond and cash holdings reflects how GIC has challenged Mr Lim.
CHALLENGES RELATING TO
This cautious attitude comes as the investment climate is already likely to be characterized by challenges pointing to low and volatile returns, noted GIC, which acts as a fund manager of state assets in Singapore.
Apart from high asset ratings and slower global growth, increased political and political uncertainty remains between an ongoing US-China trade conflict, continued fragmentation in Europe, and the prolonged Brexit process.
"We see a future (with) a series of outcomes that are skewed to the disadvantage," said Mr Lim. These include a disorderly slump of high debt, "limited" space for politicians to counteract setbacks and possible globalization, given the long-standing trade tensions, he added.
On the long-standing trade dispute between the world's two largest economies, Mr Lim noted that there is already an impact on trade and investment, given the uncertainty of a decision.
Although there is the possibility of a compromise in some areas behind a re-launch of the US-China trade negotiations, there is also the real risk of a breakdown in confidence that may result in a smaller cooperative relationship and a "very long-lasting negative impact" .
"We are worried … that if it is a longer period of trade tensions, you can lose a lot of the benefits of globalization – whether supply chains or free movement of capital and investment," said Mr Lim.
As a global investor, GIC would still "prefer a globalized world where we continue to benefit from productivity gains, innovation and knowledge sharing," he added.
Whilst GIC said it still looks for opportunities and is ready to exploit potential market shifts.
This could include national measures that countries such as China might implement in the medium term to counter the effects of the trade series and how there has been a renewed effort in free trade through bilateral or regional initiatives among some nations, US investment manager Jeffrey Jaensubhakij .
The trade conflict between the United States and China has also resulted in "pushing and pulling various industries," he added.
This means that while some industries may be affected, some may grow as a result and still see a long-term potential.
Jaensubhakij emphasized that this is still early days, but there are parallels in the offers announced this week.
GIC on M onday announced that it had entered into a joint venture with 80:20 with the data center Equinix to acquire and develop six hyperscale data centers in Europe for more than $ 1 billion. USD.
The spread of data collection and processing of data "will not be affected" by the trade tensions, said Mr Jaensubhakij and added that this is an area of "rather substantial growth" over the next five to ten years.
The same goes for its US $ 8.4 billion. & Wyoming (G & W), also announced Monday.
G & W's 120 short railway lines portfolio, largely in North America, can hit US domestic demand, which is unlikely to see major disruptions due to the trade war. Jaensubhakij.
Other areas that remain on its radar include the technology sector as well as the Asian region, where it continues to take a "constructive view" in the long run, given the high growth potential and attractive investment mental opportunities.
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Asked if GIC could invest more in the region, said Mr Lim: "If Asia continues to grow strongly as it has in the last 30 to 40 years, I believe that the chances of Asia taking more of our exposure are good. "
GIC currently owns 12 percent. of its portfolio in Japan and 20% in Asia except Japan. The rest of the portfolio is divided into markets such as the United States (32 per cent), Great Britain (6 per cent), Eurozone (12 per cent), Latin America (3 per cent), the Middle East, Africa and the rest of Europe (7 per cent) and the rest of the world (8%).
Overall, the Swedish Government Bond Fund said that its diversified portfolio, disciplined investment strategy and flexible capabilities will help with the challenging investment environment
It will continue to invest cautiously, said Mr Lim in response to a question about the monetary authority of Singapore's recent $ 45 billion transfer from the official foreign exchange reserves (OFR) to GIC.
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"It's more responsibility with more capital to implement for higher returns," he told reporters.