SINGAPORE: High economic growth potential and the availability of “attractive” investment opportunities are the reasons why GIC continues to take a constructive view on Asia in the long run.
“Asia presents attractive opportunities that can be found across consumption-based goods and services sectors, including financial services, healthcare, education and technology,” Singapore’s sovereign wealth fund said in its annual report released on Wednesday (Jul 3).
“Its global value proposition will increase further, fuelled by the continued rise of its middle class, infrastructure investments, and regional integration, backed by steady technological progress.”
While there are challenges, such as uneven structural reforms and uncertainties resulting from a protracted trade spat between the United States and China, GIC said it is “confident” that these can be addressed.
As long as Asia continues to chalk up strong growth, which translates into good investment opportunities, GIC could invest more into the region, said CEO Lim Chow Kiat.
“If Asia continues to grow strongly as it has in the last 30 to 40 years, I think the chances of Asia taking up more of our exposure are good.”
Currently, GIC holds 12 per cent of its portfolio in Japan and 20 per cent in Asia excluding Japan. The rest of its portfolio is distributed among markets such as the United States (32 per cent), United Kingdom (6 per cent), Eurozone (12 per cent), Latin America (3 per cent), Middle East, Africa and the rest of Europe (7 per cent), as well as rest of the world (8 per cent).
Mr Lim was speaking to reporters at a briefing ahead of the release of GIC’s investment report for FY2018/19. The annual report card showed GIC logging a steady return rate for the last financial year, but reiterating a cautious stance amid uncertainties including a lingering trade row.
The annual report also included a feature article on the growth drivers and challenges of Asia - a region where it said it was an “early and significant investor” since the 1980s.
“GIC has been committed to Asia’s growth story for several decades. We continue to take a constructive view on Asia’s long-term future,” it wrote.
Over the years, Asia’s share of the global economy has more than doubled over the past 40 years and its financial markets have developed significantly.
While the region is made up of economies at varying stages of development, GIC noted three growth drivers that will likely persist.
These include the region’s attitude to globalisation and openness which has allowed countries to benefit from technological catch-ups; progressive reforms in its institutions; and the adaptability of its people, improvements in educational levels and a “demographic dividend” in some Asian countries.
To be sure, challenges remain in the form of uneven structural reforms, disruption from new technologies for businesses and jobs, as well as existing labour, natural resource and environmental constraints.
The region is also vulnerable to geopolitical tensions, including North Korea and territorial challenges in the South China Sea. “These are tail-risks that could disrupt Asia’s growth story and security situation,” said GIC in its report.
One manifestation of these tensions is the growing trade and business restrictions between the US and China, it added.
While some economies may benefit from trade diversion and the reconfiguration of supply chains, such tensions are harmful to Asia overall due to its high trade dependency and regional supply chain integration.
“If the US and China impose 25 per cent tariffs on all traded goods, the peak GDP (gross domestic product) loss in the near term will be sizeable for Asia as a whole, aggravated by negative sentiments and tighter financial conditions,” it wrote.
Already, the tensions are causing a slowdown in regional trade, GIC noted.
When asked how the trade row could further impact Asian economies, particularly China, Mr Lim said China will likely still be able to grow and develop its industries and economy. However, prolonged trade tensions that could lead to a loss of globalisation’s benefits is “certainly not ideal”.
As a global investor, GIC would “still very much prefer a globalised world where we continue to benefit from productivity gains, innovation and knowledge sharing”, Mr Lim added.
Beyond trade, the country’s sovereign wealth fund is also viewing the situation in Hong Kong “with some concern”.
“Hong Kong is a very important financial and business centre so it’ll be really good if they can find a way forward. That will be good for everybody,” said the GIC chief.
However, Mr Lim added that the political uncertainties - marked by massive protests over the past few weeks against a now-suspended controversial extradition Bill – do not affect how it views the prospects of Greater China.