Singapore’s GIC raises Asia weighting, trims Europe

Asia is on the rise in the sovereign wealth fund's portfolio, with Europe a less important destination. Its CIO believes EM equities will benefit from the sustained structural improvements in emerging economies.
Singapore’s GIC raises Asia weighting, trims Europe

Pan-Asian investment by the Government of Singapore Investment Corporation (GIC) has increased, according to the sovereign fund's latest financial results.

Meanwhile Europe has become a less significant investment destination for GIC as part of its long-term goal of higher returns.

The data was revealed in an annual report charting GIC’s investments and returns over the 12 months up to the end of March 2015.

The Singapore sovereign fund, which has provided a real return of 4.9% over a 20-year annualised period (or 6.1% in nominal terms), has revealed that a quarter of its estimated $342 billion portfolio is invested in Europe – down from 29% a year ago.

This revised allocation means that Asia has now displaced Europe to become the second most important geographical market for investment. Fully 30% of GIC’s investment is now allocated to Asia inc-Japan - a 3% point rise in one year. The Americas remains the top investment destination, retaining the 43% weighting from the previous year.

While the GIC annual report does not break down Europe in detail, the group noted that low interest rates and quantitative easing worldwide is creating “lower prospective income returns and capital gains on bond investments”.

The reporting period coincided with the asset purchase programme initiated by the European Central Bank, which has seen central bankers across the eurozone buy €60 billion ($65.8 billion) worth of debt since January in a bid to raise asset prices and fight deflation. By the end of March, German 10-year bond yields were as low as 0.2%, while the Euro Stoxx 300 index gained 18.86% over the year.

Disinvestment from Europe is also part of the group’s wider efforts over the past decade to shift from developed market equities to emerging markets. “We expect these assets to contribute positively to the GIC portfolio over the long term,” said CIO Lim Chow Kiat.

“For example, we believe that emerging market equities will benefit from the sustained structural improvements in emerging economies. This is in spite of the fact that they have underperformed developed market equities over the past few years.”

One region which has seen an increased allocation is North Asia. Investments in mainland China, Hong Kong, South Korea and Taiwan in aggregate now account for 15% of the group’s portfolio.

The other significant shift is the rise from 3% to 5% of GIC’s portfolio allocated to the category of “others” in Asia. Although GIC refuses to disclose which countries this applies to, it would be fair to assume the increase is at least partly attributable to the greater focus global investors have given India in the past year or so.

Of the recent market turmoil in China, Lim struck a cautionary note. “The turmoil reflects the fallout of aggressive speculation by market participants. Large margin financing, very high turnovers and extreme valuations were evident in the recent months,” he said in response to AsianInvestor’s enquiry.

GIC currently has quotas in the qualified foreign institutional investor (QFII) scheme and its renminbi equivalent (RQFII) to invest directly in the Chinese market. Lim said: “We will need to watch closely in the next few months to see how recent measures help to stabilise the markets.  This turmoil poses some short-term challenges, but we do not see a long-lasting negative effect.”

Lim noted that GIC is placing much more emphasis on investing in private companies: “GIC is now more engaged with its partners and investee companies. This closer collaboration includes co-investing, making introductions and structuring investments, including spinning off companies.”

In January, the group announced that it is working with British Land in submitting an application for the refurbishment of 100 Liverpool Street, an office and retail complex in the City of London.

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