GIC bullish on Asia opportunities

The new CIO of the sovereign wealth fund believes several trends including ecommerce in Asia are creating attractive investment opportunities, but he cautioned on rising valuations and risk.

The growth of ecommerce in China is one of several macrotrends that make Asia an increasingly attractive investment opportunity, according to Lim Chow Kiat, managing director and group chief investment officer at the Government of Singapore Investment Corporation (GIC).

Speaking at the CFA Institute Annual Conference in Singapore on “Investing in a low-yield world”, Lim said annual sales of online retail goods in the PRC have grown 120 percent a year for the last ten years, reaching $200 billion in 2012. By 2020, the figure is expected to hit $650 billion, he said, citing data from McKinsey & Co. 

“Importantly, these trends have matured sufficiently to now offer large investable stakes in key players,” he said.

Additionally, the region stands to benefit as China’s economic model transforms. He said the PRC used to compete for foreign direct investment with other Asian countries, but it is now taking on the role of a buyer of goods from its neighbors.

The surest way to lose money is to overpay for assets

Lim Chow Kiat
Group chief investment officer

The rise of the middle class in many emerging economies “is an opportunity not to be missed by any investors, even as occasional setbacks are inevitable”. Asia Pacific’s share of global middle class consumers will rise to 54 percent in 2020 from just 28 percent in 2009, he said. 

The ratio is expected to increase to two-thirds by 2030, according to OECD data. 

Current challenges to investing in emerging Asia are valuations, he said. While investors are always concerned about the prospects of fundamentals such as growth, inflation, quality of assets, cash flows and the like, what is particularly important in this time of uncertainty are the prices at which investors buy assets. 

“The surest way to lose money is to overpay for assets,” he said. 

The challenge can be met by teasing out systemic risks in the portfolio, by adjusting return expectations and by avoiding excessive risk taking. Risk can be reduced over time through portfolio rebalancing and by averaging out capital commitment. 

When yields and returns are low, he said, every cent counts and fee structures prevalent during the times of high interest rates should be reviewed. 

Lim became CIO in February after Kok Song Ng, the first group CIO, retired, Private Equity International reported earlier. 

Established in 1981 to manage Singapore’s foreign reserves, GIC has assets under management of about $250 billion, according to PEI’s Research & Analytics division. About $27 billion or 11 percent is allocated to private equity. 

In September, GIC, the Kuwait Investment Authority and a third unnamed Asian fund together bought a 10 percent stake in CVC Capital Partners, PEI reported earlier.