For most of the region’s asset owners that can invest beyond their borders, investing China is unavoidable.
GIC is no exception; as Singapore’s sovereign wealth fund it is spearheading efforts by the Lion City to deepen ties with the region's economic leviathan.
“Many of our portfolio holdings are directly affected by what happens in China,” GIC's chief executive, Lim Chow Kiat, said at its October in-house event in Beijing, a summary of which was released last week.
As it gradually opens up to the world, China has become integral to the Asian strategies of several major institutional investors such as the Canada Pension Plan Investment Board, Ontario Teachers' Pension Plan and Prudential.
About 19% of GIC’s portfolio is invested in Asia ex-Japan across asset classes.
The SWF has not disclosed how much it invests in China specifically but in his keynote speech Lim outlined some of the key attributes of GIC’s investments on the mainland, especially those related to the technology sector.
“Some of our best investments have not been first movers, but fast followers and good executors,” he said. "Often it is not the technology innovation, but providing goods and services at scale, with the right quality and ... enough price points for consumers, that matters.”
Lim noted that change is happening at such a rapid pace and is so ubiquitous that every company is practically a technology company. "Rather than traditional classifications, we need to look deeper into the actual technological capabilities of each company,” he said.
"We have found traditional companies with such capabilities but trading at old economy valuations. These are good investments we want to keep looking for.”
Lim noted that holding a basket of top companies in China would pay in the long term. “By staying [invested] through cycles, we have a better chance at identifying what those companies are or will be,” he said.
GIC's investments are spread across public and private markets, the latter including real estate and private equity.
Its most recent China-related deal happened in September, when it teamed up with GLP, an operator and developer of logistics assets, to establish a $2 billion fund in China to invest in income-generating logistics facilities in China. The fund aims to capitalise on the soaring growth in e-commerce in the country, which is set to drive demand for high-quality logistics properties.
Singapore and China have long been keen to deepen their trading and investment ties. Singapore has been China's largest foreign investor since 2013, while China was Singapore's largest trading partner in 2016, according to Singapore government data.
Efforts to forge stronger ties continue. For example, on November 5, Singapore Exchange announced it would sign memorandums of understanding with the Zhejiang Entrepreneurs Association, which has strong links to companies based in the coastal Chinese province, and the China Futures Association as part of its multi-asset, international growth strategy.
For GIC, China's bond markets are also very much on the radar: at an AsianInvestor event in October, chief investment officer for fixed income, Liew Tzu Mi, expressed the belief that Chinese bonds could become mainstream investments in global bond portfolios within a decade.
“We have been working with authorities even before they opened the [bond] market, to really understand the ways in which we can access the market and learn more and, hopefully, also add value by providing them with our experience of how we invest in other markets,” she said at the event jointly organised with State Street Global Advisors.
She noted that as home to several of the world’s top companies, it was only a matter of time before China's onshore corporate bond market, currently undeveloped, began to mature.
She highlighted the fact that GIC’s horizon, unlike many other investors, is very long term, ranging up to 20 years or more. “..therefore, when [we] think about investment strategy, it is pretty much a function of where we see the long-term trends are going to be,” she said.
She also noted that the SWF did not see Asia as 'one bloc of countries’ or even as emerging markets. “The reality is that what is called emerging markets today is a very heterogeneous asset class,” she said.
What's happening in Brazil is very different from what is happening in Turkey, China or Korea, she said.
"So when we think about allocating to some of these markets, it's really driven by more idiosyncratic, stand-alone considerations about the long term, rather than looking at it as a bloc,” she added.
GIC achieved a 20-year annualised rate of return of 3.4% above global inflation for the financial year ended March 31, 2018.