Singapore wealth fund GIC turns to China, Brazil, Korea

Singapore wealth fund GIC, one of the largest shareholders in UBS (UBSN.VX)(UBS.N) and Citigroup (C.N), plans to invest more money in emerging markets and less in developed markets due to the long-term challenges facing the United States and Europe.

Over the 12 months to end-March 2011, GIC increased its exposure to emerging market equities to 15% of its portfolio from 10%, GIC said in a statement. 

The Singapore sovereign fund cut its exposure to developed market stocks to 34% from 41% previously during the same period.

 

GIC’s exposure to the United States fell to 33% at end-March 2011 from 36% a year earlier, while its exposure to the eurozone dropped to 12% from 16%. 

 

“Outside the emerging economies, it’s a case of choosing between three very unpleasant outlooks in Europe, the U.S. and Japan,” the Business Times quoted GIC Group Chief Investment Officer Ng Kok Song as saying.

 

GIC, which manages about US$300 billion ($361.5 billion), regularly briefs local media about its performance but shies away from the international press. It held a briefing for Singapore media on Monday.

 

The Business Times said six markets — China, Brazil, Taiwan, Korea, India and South Africa — accounted for almost three-quarters of GIC’s investments in emerging market public equities.

 

Ng told the Straits Times, another Singapore newspaper, Western countries faced long-term challenges in managing their debt. For the United States, it was not simply a question of whether Congress is able to lift the borrowing ceiling in time to avoid a default.

 

“Unless further action is taken to alleviate the debt burden on countries such as Greece, then the problems will fester,” he added.  

GIC, which is the acronym for the Government of Singapore Investment Corp, said it achieved a nominal annualised rate of return of 6.3% in the five years to March 31.

 

The annual return, in U.S. dollar terms, was 7.4% over 10 years and 7.2% over 20 years.

 

“Starting this year, GIC is also publishing the five-year and 10-year nominal rates of return to provide a sense of the on-going medium-term investment performance, even while GIC maintains its sights on the long term,” the Singapore fund said in a statement.

 

GIC had previously only reported its annualised returns over 20 years.

 

After taking into account global inflation, GIC’s annual real rate of return over 20 years rose to 3.9% at end-March 2011 from 3.8% at the end of March 2010. 

 

CITI, UBS

Turning to Citigroup and UBS, which GIC helped rescue during the financial crisis, Ng told the Business Times the Singapore fund’s long-term view on the two lenders has not changed despite the introduction of higher capital requirements that are likely to reduce future profitability.

 

GIC owns about 6.4% of UBS and 3.86% of Citigroup even after selling half its stake in the U.S. bank in 2009.

 

GIC’s original investment of 11 billion Swiss francs in UBS, made in March 2008, is still showing a paper loss of some 5.6 billion francs ($8.4 billion), the Business Times reported. 

 

Its remaining stake in Citigroup is showing an unrealised gain of some $1.1 billion, the paper said, citing its own calculations.

 

On China, Ng said potential losses from bad debt at Chinese banks are unlikely to overwhelm the country’s banking system.   

 

“The Chinese government has the financial wherewithal, if necessary, to recapitalise the banks, so I don’t think you’re going to have a systemic problem such as what we saw in Europe,” the Business Times quoted him as saying.