SINGAPORE: Singapore wealth fund GIC said U.S. government bonds remain a safe investment despite fears of a looming debt default, but noted longer-term concerns about fiscal strains in the U.S. and Europe were prompting it to shift more money into emerging markets.
GIC, the world's eighth-largest sovereign fund with an estimated $300 billion in assets, said U.S. Treasuries "are still in global terms the most liquid and safe assets", despite uncertainty over whether Washington can gain control over its spending in the long run.
"The headline news on the U.S. debt ceiling, to us that's more of a technical thing," said GIC Group Chief Investment Officer Ng Kok Song, according to notes provided by the Singapore wealth fund on Tuesday, July 26 after it released its annual report.
"There could be some short-term effects, but fundamentally, (U.S. 10-year yields below 3 percent) lets us feel U.S. Treasury bonds are still in global terms the most liquid and safe asset ... It's a relative thing, but the U.S. is not in a Greek kind of situation," he added.
With little more than a week before an Aug. 2 deadline to raise the country's $14.3 trillion debt ceiling, Republican and Democratic leaders remain stuck in an acrimonious standoff that might trigger a U.S. debt default, hurting financial markets around the world.
GIC's Ng said the more pressing issue in the United States was about controlling the deficit.
"I think what matters in the longer term is whether either the current negotiations...are able to come to some agreement, the Republicans and Democrats can come to some agreement on long term plans to cut back the deficit," he said.
"Or if they can't do it now, whether the presidential elections in 2012 will then be able to put in place a longer term plan."
GIC, or the Government of Singapore Investment Corp, cut its exposure to developed market equities to 34 percent of its total portfolio in its latest financial year ended in March 2011, from 41 percent at end-March 2010, according to its annual report.
At the same time, it increased its exposure to emerging market equities to 15 percent of its portfolio from 10 percent.
Its overall exposure to U.S. assets fell to 33 percent from 36 percent, while its exposure to the euro zone dropped to 12 percent from 16 percent.
"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 newspaper quoted Ng as saying at a briefing for local media on Monday.
GIC regularly briefs local media about its performance but shies away from the international press.
EMERGING MARKETS
Ng 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.
On China, Ng said potential losses from bad debts at Chinese banks were 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.
Turning to Citigroup and UBS , which GIC helped rescue during the global financial crisis, Ng told the Business Times that 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 profitability.
GIC owns about 6.4 percent of UBS and 3.86 percent of Citigroup even after selling half its stake in the U.S. bank in 2009.
GIC achieved a nominal annualised rate of return of 6.3 percent in the five years to March 31, the annual report said.
The annual return, in U.S. dollar terms, was 7.4 percent over 10 years and 7.2 percent over 20 years.
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 percent at end-March 2011 from 3.8 percent at the end of March 2010. - Reuters
GIC, the world's eighth-largest sovereign fund with an estimated $300 billion in assets, said U.S. Treasuries "are still in global terms the most liquid and safe assets", despite uncertainty over whether Washington can gain control over its spending in the long run.
"The headline news on the U.S. debt ceiling, to us that's more of a technical thing," said GIC Group Chief Investment Officer Ng Kok Song, according to notes provided by the Singapore wealth fund on Tuesday, July 26 after it released its annual report.
"There could be some short-term effects, but fundamentally, (U.S. 10-year yields below 3 percent) lets us feel U.S. Treasury bonds are still in global terms the most liquid and safe asset ... It's a relative thing, but the U.S. is not in a Greek kind of situation," he added.
With little more than a week before an Aug. 2 deadline to raise the country's $14.3 trillion debt ceiling, Republican and Democratic leaders remain stuck in an acrimonious standoff that might trigger a U.S. debt default, hurting financial markets around the world.
GIC's Ng said the more pressing issue in the United States was about controlling the deficit.
"I think what matters in the longer term is whether either the current negotiations...are able to come to some agreement, the Republicans and Democrats can come to some agreement on long term plans to cut back the deficit," he said.
"Or if they can't do it now, whether the presidential elections in 2012 will then be able to put in place a longer term plan."
GIC, or the Government of Singapore Investment Corp, cut its exposure to developed market equities to 34 percent of its total portfolio in its latest financial year ended in March 2011, from 41 percent at end-March 2010, according to its annual report.
At the same time, it increased its exposure to emerging market equities to 15 percent of its portfolio from 10 percent.
Its overall exposure to U.S. assets fell to 33 percent from 36 percent, while its exposure to the euro zone dropped to 12 percent from 16 percent.
"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 newspaper quoted Ng as saying at a briefing for local media on Monday.
GIC regularly briefs local media about its performance but shies away from the international press.
EMERGING MARKETS
Ng 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.
On China, Ng said potential losses from bad debts at Chinese banks were 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.
Turning to Citigroup and UBS , which GIC helped rescue during the global financial crisis, Ng told the Business Times that 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 profitability.
GIC owns about 6.4 percent of UBS and 3.86 percent of Citigroup even after selling half its stake in the U.S. bank in 2009.
GIC achieved a nominal annualised rate of return of 6.3 percent in the five years to March 31, the annual report said.
The annual return, in U.S. dollar terms, was 7.4 percent over 10 years and 7.2 percent over 20 years.
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 percent at end-March 2011 from 3.8 percent at the end of March 2010. - Reuters
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