GIC 'not too perturbed' by recent emerging market rout, sees buying opportunities: CEO

GIC 'not too perturbed' by recent emerging market rout, sees buying opportunities: CEO

GIC chief executive Lim Chow Kiat speaking at Bloomberg summit
GIC's chief executive officer Lim Chow Kiat in an interview at Bloomberg's "Sooner than you think" forum in Singapore on Sep 6, 2018. (Photo: Bloomberg)

SINGAPORE: Singapore sovereign wealth fund GIC is “not too perturbed” by the recent turmoil in emerging markets and according to its CEO Lim Chow Kiat, there may be buying opportunities on the horizon. 

Speaking at a technology summit organised by Bloomberg on Thursday (Sep 6), Mr Lim said: “As a long-term investor, we are not too perturbed by it and at least in some markets, it (has given) us some opportunities.” 

Without going into specifics, he said there were stocks and bonds where valuations had previously seemed “a bit stretched”. The current market rout may have thrown up a “window of opportunity”, he added. 

Concerns over economic crises in some emerging markets, such as Argentina and Turkey, alongside a surge in the US dollar and trade uncertainties, have fed into a wider retreat among other markets. 

This has fuelled worries that the turbulence could spread and even spill over into major economies.

READ: Indonesian rupiah, stocks battered in emerging market rout

But Mr Lim reckoned that the recent market volatility boils down to “idiosyncratic” factors that stem from individual difficulties faced by these countries, instead of “systemic-level problems”. 

He added that the current flow of international capital out of emerging markets and back to the United States, where the US Federal Reserve is pushing to steadily increase interest rates, is not new. 

“We’ve seen that movie before,” he said, while referring to the “dry run” of 2013’s taper tantrum. Then, emerging markets found themselves hit by a bout of panic selling after Federal Reserve chairman Ben Bernanke hinted at a reduction in stimulus. 

Following that, some emerging markets have taken tough corrective measures to “put the house in order”, said Mr Lim. This includes cutting down on credit expansion and strengthening fundamentals. 

“Money tends to flow back to the US because interest rates are higher. Over time, the value will emerge and the money will come back,” he said, while stressing that GIC sees the ongoing rout as a "shorter-term market concern”. 

Nevertheless, GIC is not all sanguine and Mr Lim noted that the sovereign wealth fund is worried about the high valuations in some developed stock markets. 

Again without referring to specific markets, he said valuations in these markets are pricing in fairly good economic growth ahead. 

“So in terms of risk-reward for an investor, that’s not a great situation to be in.”

READ: GIC’s annualised 20-year real return slips to 3.4%; maintains cautious investment stance

INVESTING IN TECH

During the session, Mr Lim also touched on GIC’s investment strategy in the technology space.

Among the factors that the sovereign wealth fund looks out for in a technology firm, Mr Lim highlighted the need for a “relentless” focus on customer value.

“Business enterprises ultimately succeed or fail on whether they deliver customer value,” he said. “Good, cheap and fast still matters, perhaps even more so. It’s the great formula for producing unicorns.”

GIC also likes emerging markets where powerful technology disruptions can occur due to the presence of more unmet and undiscovered needs, said Mr Lim.

With the younger population in these developing economies taking to technology faster, a “well-funded disruptor has many leap-frogging opportunities”, he added.

GIC said it has been an investor of technology since its founding. While it started off with investments in listed companies, it began investing in venture capital funds with the set-up of its office in San Francisco in the 1980s. 

READ: "We have to be positioned for change" – GIC bets on deeper investments in tech

This required it to make “mental adjustments”, especially when it comes to investing in early-stage technology start-ups that are cash-flow negative and do not have a strong track record.

“This requires us to understand the quality of entrepreneurs and have a long-term mindset that we may not see the outcome for a while and have to support the company over many rounds," Mr Lim said.

It is also key to not be expecting a “100 per cent hit rate” all the time, he added.

“We also accept a certain percentage of not getting it right but thankfully, we have been able to find some of these companies.” 

Source: CNA/mz(cy)

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