26 Sept 2008
Mr Ng Kok Song, chief investment officer of GIC, told a press conference on Tuesday that the timing of GIC’s investments in Citigroup and UBS “could have been better”, but reiterated that he was “confident” both investments would offer long-term returns. (ST, “GIC achieves 4.5% annual returns”, 24 Sept)
GIC had invested about US$9.75 billion in Swiss wealth management firm UBS in December 2007 and US$6.9 billion in US bank Citigroup in January 2008.
Since last December, UBS’s share price has plunged about 60 per cent. Citigroup has fallen about 25 per cent since January, when GIC injected funds.
In my opinion, the majority of folks who are in tune with the market would have known by end of 2007 that the subprime crisis had just begun to escalate and it was nowhere near the end.
To be sure, experts at the end of last year were still divided on whether they would be an outright recession in the US. But as far as the magnitude of the credit crunch was concerned, there was little doubt that end 2007 was not even close to the halfway point.
Had Mr Ng Kok Song read credible reports like those published by the Bank Credit Analyst? If so, he would have known better than to make such ill-timed investments, the paper losses of which would have more than covered this year’s Budget handouts.
Although the US$700b bailout package marks the end of the credit turmoil, all is not rosy yet, because the current revolt in the US credit markets will soon filter down to Main Street and cause a recession in the broader economy. All leading economic indicators affirm this. There is little doubt on this now.
The US Fed needs to lower its target fed funds rate to 1.5%, and keep the yield curve steep so that financial corporations can make profits. Only then will the recession be kept shallow and the damage minimum.
I believe that inflation and interest rates in the US will rise in the coming years as a result of money printing and a gradually increasing tendency for investors to shun US assets.
Also, US GDP growth is expected to be slower in the next decade, at over 2% per annum, in contrast with the 3-4% per annum growth recorded in the last 25 years.
All of this will make the price/earning multiples of US stocks contract and create a tough environment in the US equities market.
Asia and Emerging Markets such as China and the Middle East will overtake US and Europe as the centres of economic growth. The better investment opportunities will most likely be found there.
I think GIC’s hasty investments in struggling banks of the developed economy will yield mediocre returns for a long time to come. They should have saved their powder to buy at cheaper prices, and look more towards Asia and the Middle East instead.
Mr Ng Kok Song, chief investment officer of GIC, told a press conference on Tuesday that the timing of GIC’s investments in Citigroup and UBS “could have been better”, but reiterated that he was “confident” both investments would offer long-term returns. (ST, “GIC achieves 4.5% annual returns”, 24 Sept)
GIC had invested about US$9.75 billion in Swiss wealth management firm UBS in December 2007 and US$6.9 billion in US bank Citigroup in January 2008.
Since last December, UBS’s share price has plunged about 60 per cent. Citigroup has fallen about 25 per cent since January, when GIC injected funds.
In my opinion, the majority of folks who are in tune with the market would have known by end of 2007 that the subprime crisis had just begun to escalate and it was nowhere near the end.
To be sure, experts at the end of last year were still divided on whether they would be an outright recession in the US. But as far as the magnitude of the credit crunch was concerned, there was little doubt that end 2007 was not even close to the halfway point.
Had Mr Ng Kok Song read credible reports like those published by the Bank Credit Analyst? If so, he would have known better than to make such ill-timed investments, the paper losses of which would have more than covered this year’s Budget handouts.
Although the US$700b bailout package marks the end of the credit turmoil, all is not rosy yet, because the current revolt in the US credit markets will soon filter down to Main Street and cause a recession in the broader economy. All leading economic indicators affirm this. There is little doubt on this now.
The US Fed needs to lower its target fed funds rate to 1.5%, and keep the yield curve steep so that financial corporations can make profits. Only then will the recession be kept shallow and the damage minimum.
I believe that inflation and interest rates in the US will rise in the coming years as a result of money printing and a gradually increasing tendency for investors to shun US assets.
Also, US GDP growth is expected to be slower in the next decade, at over 2% per annum, in contrast with the 3-4% per annum growth recorded in the last 25 years.
All of this will make the price/earning multiples of US stocks contract and create a tough environment in the US equities market.
Asia and Emerging Markets such as China and the Middle East will overtake US and Europe as the centres of economic growth. The better investment opportunities will most likely be found there.
I think GIC’s hasty investments in struggling banks of the developed economy will yield mediocre returns for a long time to come. They should have saved their powder to buy at cheaper prices, and look more towards Asia and the Middle East instead.
