Singapore's GIC sovereign fund expects low US stock returns

Singapore's GIC sovereign fund expects low US stock returns

GIC expects below-average returns from US stocks over the next five to 10 years, but the Singapore sovereign wealth fund still sees the US as an important source of investment opportunities.

"The greatest strength of the US is the private sector. If that continues to be the case, we are not concerned," said Lim Chow Kiat, GIC Private Ltd's chief investment officer.

"We find a lot of investment opportunities in the US," he said. "A lot of exciting things are coming out of the private sector on a daily basis."

Lim said US equity returns in real terms have averaged 6 to 7 per cent, and most likely for the next five to 10 years that will be 2 to 3 per cent. The S&P 500 is basically flat on the year, after suffering a steep decline in January and February before reversing it in the last several weeks. The index was down 0.7 per cent for 2015. "The central banks in the last few years have brought future returns forward," he said.

"The problem is once that's done, what is there to look forward to - very little," he said. "They bought time for their economies to improve."

The economies of developed regions like Europe and Japan are still growing sluggishly.

"We are very much in the camp of saying you need supply-side reform," he said. That could mean tax reform, pension reform and labour reform.

"Around the world, we only see China, Mexico and India trying to do something to make a difference" for their countries, he said. "Just everyone else is really relying on their central banks."

Lim was speaking to a delegation from the Financial Women's Association of New York, visiting Singapore last week as part of its annual international trip.

GIC holds its long-term portfolio in six asset classes, which it views as funding sources, he said.

Sixty to 65 per cent of its portfolio is in the equity asset class in developed markets, emerging markets and in private equity investments. GIC also invests in fixed income and real estate.

"The US is 45 per cent of our exposure - the biggest investment destination for us," he said. Bridgewater Associates has been an investment partner with GIC for more than 20 years, he noted.

GIC looks for long-term opportunities in the $1 billion (S$1.37 billion) to $3 billion range.

Lim said GIC owns over 1,000 US listed companies in small positions.

Lim said GIC is constantly looking at new technologies, such as cloud computing, block chain, electronic cars, self-driving vehicles, machine learning and renewable energy. He said the US is the largest source of innovation, but he is also looking at opportunities in Shenzhen, similar in spirit to Silicon Valley.

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