Some of the smartest institutional investors on any continent are the people who run the sovereign wealth fund of Singapore. Known officially as the Government of Singapore Investment Corp., or GIC, this fund is basically the private fund manager of a country that rose out of the ashes of World War II to become one of the wealthiest countries, per capita, in the world.
The tiny city-state at the top of the Malay Peninsula has no natural resources, so everything it has accomplished has been through hard work, persistence and savvy. So when they tell you what they are doing with a $100 billion fund amassed from banking and trading, you should listen.
The upshot is that after a major review of opportunities around the globe, GIC chief investment officer Ng Kok Song said the fund would begin to place a much bigger portion of its bets in emerging markets, especially Asia. He said the fund had already boosted its investments in emerging-market public equities by 50% over the past few months, and plans to also substantially increase the proportion of its real estate and private equity investments going into emerging markets.
Speaking to the Business Times, a newspaper in Singapore, the investment chief said five economies — China, India, Brazil, Korea and Taiwan — currently accounted for 80% of what the firm considers emerging markets. But he said the fund also sees very attractive opportunities in Indonesia, Vietnam, Turkey, Poland and South Africa.
The fund had just 10% in emerging market equities through the end of March, unchanged from a year ago, so apparently a lot of the push higher we have seen in the e.m. ETFs that we own hav come from GIC’s entry. Ng said that his target allocation is 15% for public equities, and that an additional amount would be put into private equity, which would include infrastructure, mines and real estate.
”In our assessment, the likely returns for investing in emerging Asia will be superior on a risk-adjusted basis compared to the developed markets,” Ng said to the newspaper.
GIC’s views have become particularly worth noting in the past few years after reports showed that its managers had deftly exited from stocks from July 2007 to September 2008 due to a belief that markets had become overly exuberant. The drastic move to cash — the first in the fund’s history — shielded the sovereign wealth fund from the worst of the financial crisis. It was said to be a departure from its long-term investment approach, which had previously eschewed attempts to time the market. A friend of mine is one of their Wall Street consultants, and confirms this story and their unusually prescient approach.
Bottom line: GIC’s opinion helps to validate our view that emerging markets continue to present a major opportunity. Since GIC is a leader, they are probably early — so this theme has quite a ways to go before it plays out. Figure ten years at minimum.
For more ideas like this every day, check out Markman’s two daily advisories: Trader’s Advantage for short-term traders and Strategic Advantage for long-term investors with a tactical bent.
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