November 15, 2024
SINGAPORE – Singapore’s sovereign wealth fund GIC still believes in the long-term potential of the US economy and will continue to invest in it despite intensifying global tensions that make investment decisions more difficult, said Senior Minister Lee Hsien Loong.
SM Lee, who chairs GIC, said the US continues to be the most dynamic and resilient economy, and the destination of choice for talented and enterprising people from all over the globe. Meanwhile, its capital markets remain the most innovative and open in the world.
“And therefore, we fully intend to continue investing in the US and maintaining American assets as a substantial part of our overall portfolio,” he said on Nov 13 at an event at Spring Studios in New York to mark GIC’s 40 years in the US.
“We have every confidence that this is the correct choice for a fund taking a long-term perspective,” he added, referring to the US, which accounts for more than one-third of GIC’s global investment portfolio.
SM Lee told the GIC Insights 2024 event he was confident that GIC would continue to be a patient investor in the US for a long time to come.
“We have stayed here in the US throughout 40 very successful years of partnership, whether the market moved up, down or sideways,” he said.
“We were there before the book, Dow 36,000, was written 25 years ago, and now, we are still here, and the Dow is about to be 44,000,” he said, referring to US stock market Dow Jones Industrial Average.
However, he also stressed that the international environment has become much more challenging, with far greater wariness over both inbound and outbound investments.
“The zeitgeist has changed, and not just in the US,” he said.
“Considerations of national security, resilience, and staying ahead of competitors and rivals have become increasingly important; economic considerations are becoming secondary; political support for free trade, multilateralism, and globalisation has evaporated; and protectionism has become respectable again.”
SM Lee said GIC, established in 1981, is a long-term investor with a stated goal of delivering returns over and above inflation and financial volatility, a strategy that underpins its decision to remain invested in the US through thick and thin.
He mentioned how GIC weathered the US market’s biggest single-day crash, called Black Monday, on Oct 19, 1987 – just three years after it opened its New York office.
GIC also persevered through the dot.com boom and the bust cycle in the early 2000s, the global financial crisis in 2008 and, more recently, the Covid-19 pandemic that threw world markets into turmoil.
“We know that markets go through cycles – that is an unavoidable reality, which we must accept and ride through with some equanimity, if we are to maximise long-term returns,” SM Lee said.
He noted that GIC’s total portfolio has grown steadily and done well, achieving an average annual return of about 4 per cent over the past 20 years: “This is over and above the global inflation rate, because it is a real rate of return.”
However, SM Lee also stressed that while GIC continues to have faith in the US economy’s vibrance, dynamism and sheer resilience, estimating risk-adjusted returns is becoming much harder.
“We are no longer just calculating stochastic, quantitative risks that we can model and estimate, but also assessing uncertainties that are harder to predict, and scenarios with unquantifiable probabilities and unforeseeable consequences.”
Referring to the Nov 5 US election, SM Lee said: “The results are clear, but analysts are still busy examining the entrails to divine what lies ahead.”
Most analysts believe US President-elect Donald Trump’s plan to impose harsh trade tariffs will hurt global economic growth and boost inflation.
While US stocks have soared to a record high in the wake of the election, US bonds were sold amid concerns over the inflation outlook.
“In this darker, more complex climate, GIC must still pursue its mission to invest, and to protect and grow its portfolio,” SM Lee said.
He said GIC will have to weigh the implications of different possibilities, and added: “Will normal cycles of recession and recovery persist, or will they be disrupted by strategic, political, or security considerations and developments?
“Will markets continue to function, or will geopolitical events shut down certain businesses while boosting others? Will GIC need to hold a stock of physical gold, and if so, where?”
SM Lee said a fund manager like GIC must now deal with a whole different set of challenges altogether. However, it continues to see opportunities in the US, especially in emerging areas like climate technology and sustainability.
“Besides helping to decarbonise the global economy, such investments can also benefit local communities,” he noted.
He gave examples of two companies in GIC’s US portfolio, without naming them, to illustrate his point.
One, Form Energy, is building a battery plant in West Virginia, on the site of an old steel mill, to manufacture iron-air batteries that provide long-duration energy storage, while creating hundreds of jobs in the local community.
Another firm, Zum, is working with school districts across the US to electrify school transportation, and recently announced the first 100 per cent electric school bus fleet in the US in Oakland, California.