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GIC sovereign wealth fund warns of record international debt

Singapurs sovereign wealth fund GIC warns of a global debt crisis, but thanks to good earnings in the long term, is still posting growth. By the end of the past fiscal year (March 31), earnings had increased by an average of 2.7 percent over the past 20 years. The same period had brought growth of 3.4 percent a year in 2019. The new value is as low as it was last during the 2009 global financial crisis.

In its annual report, GIC warns of the growing world debt and its consequences: “If central banks continue to keep key interest rates low, even though economic activity is increasing, economies could overheat, which will create inflationary pressure.” This in turn increases the risk of capital flight and devaluation spirals. According to its own information, GIC maintains a portfolio of “well over $ 100 billion in more than 40 countries”. For comparison: Temasek Holdings, the state-owned investment company led by the wife of the Prime Minister, lost 2.2 percent of its portfolio, which now amounts to 306 billion Singapore dollars (192.41 billion euros), last year.

Positioned conservatively

GIC manages the foreign reserves of the rich city-state and is known for its conservative investment. The slowdown in the growth rate apparently does not yet reflect the corona crisis with its dramatic consequences, but initially the deletion of “huge profits” during the bubble in technology values ​​in the late 1990s from the 20-year report window, GIC said -Chef Lim Chow Kiat. Due to the high valuation of investments, GIC had positioned itself conservatively before the outbreak of the epidemic and thus increased the share of government bonds and cash reserves from 39 to 44 percent. Investments in equities in developed markets and emerging markets were reduced by 4 and 3 percentage points. The proportion of real estate has remained stable at 7 percent.

Even before Corona, it appeared that the prices of investments did not adequately compensate for the risk given the weakening fundamentals, limited political scope and growing geopolitical uncertainties. GIC has therefore reduced the risk in the portfolio and subjected it to a stress test. This defensive stance hedge against the worst in the first quarter of 2020, the report said.

Like practically all investors, GIC is interested in growth markets such as healthcare and technology. Given the growth of electronic commerce, consumer business is just as interesting as the topic of infrastructure, especially with regard to energy supply – they should recover after the pandemic has subsided. GIC has also participated in data centers. “If Corona has proven something, it is that people can and want to shop from home,” said chief investor Jeffrey Jaensubhakij. Some – unnamed – emerging markets worried him about their ability to deal with Corona. But the investment volume in Asia will probably continue to expand because urbanization and the growth of a middle class continue there.

More Asian companies would also appear on the world stage. Indonesia and Vietnam, but also America, remained interesting, said Jaensubhakij. At the moment, the proportion of investments in Asia is 32 percent, that in America is 34 percent of the portfolio, while Europe is 19 percent.

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