The Government of Singapore Investment Corporation, the city state’s sovereign wealth fund, almost quadrupled its allocation of cash and cut exposure to equities and bonds over the past 12 months amid heightened uncertainty in global markets.
GIC and Temasek, Singapore’s other state investment agency, are bellwethers for the government’s view on the global investment landscape. Allocation of cash by GIC rose to 11 per cent of its portfolio from 3 per cent, a level higher than during the 2008 financial crisis. Exposure to equities fell to 45 per cent from 49 per cent. GIC does not disclose the exact size of its portfolio, but says it manages well over US$100bn.
In its annual report on Tuesday, the fund warned that the medium-term outlook for the global economy was “challenging”, with Europe weighed down by debt deleveraging and a fragile US recovery that “could be aborted by automatic spending cuts and tax increases if political gridlock continues beyond the 2012 elections”.
“Due to the heightened uncertainty in global markets, we allowed the cash inflow from investment income and fund injection to accumulate during the year in preparation for better investment opportunities,” GIC said.
The fund said it had reduced its allocation to bonds because “bond yields in the developed markets had been pushed down to abnormally low levels by the flight to safe assets and central bank intervention”.
It cautioned that a cyclical slowdown in China was coinciding with problems in developed economies, which would weaken global business confidence and hit commodity producers.
“Looking ahead, we assess that the investment environment will be characterised by a global economy struggling to return to sustainable growth,” GIC said.
Earlier this month Temasek, which manages a portfolio worth S$198bn (US$159bn), warned of “significant contingent risks” facing Europe as it reported a 16 per cent fall in annual net profit.
China Investment Corp, China’s sovereign wealth fund, last week said it lost 4.3 per cent on its global investment portfolio in 2011, suffering its worst year ever in the face of weak markets.
Unlike Temasek, which invests in equities or takes stakes in companies, GIC is a diversified investor with holdings in equities, fixed income, property, private equity and hedge funds.
GIC is also more heavily skewed towards developed economies than Temasek, with about 68 per cent of its portfolio invested in North America and Europe. Temasek has 11 per cent invested in those regions.
Of GIC’s total portfolio, 30 per cent is allocated to equities in developed markets and 15 per cent in emerging markets.