That’s a no, on GIC

In this issue:

• Chee Hong Tat says GIC must seek attractive investments
• GIC buys stake in Indonesian toll-road operator

Greetings dear reader,

If you had been holding on to the hope that GIC would become an investor in the Singapore stock market, it’s time to let it go.

In Parliament last week, Second Minister for Finance Chee Hong Tat said the government “should not direct or interfere with GIC’s investment decisions”.

He was responding to a question of whether the government would “consider the suggestion from some industry players for GIC to allocate part of its investments to securities listed on the Singapore Exchange (SGX) to revitalise” the bourse.

Pension funds in many countries have significant allocations to domestic markets. GIC is not a pension fund, but the ultimate source of some of the money it manages is the pool of savings in the Central Provident Fund. So, some might wonder why GIC should not be similarly invested in SGX-listed stocks.

Chee’s response has some useful implications for any market revival plan, which I pick out below. I also look at what GIC is doing with its funds instead.

What’s happening?

In a close reading of Chee’s speech in Parliament, three points stood out to me.

First, GIC’s priority must be to “achieve good long-term returns” and “preserve the international purchasing power of the reserves”.

To fulfil its mandate, GIC must invest in a “globally diversified portfolio that reflects the availability and attractiveness of global investment opportunities and asset classes”.

A directive to invest in locally listed companies would “compromise” the objectives of GIC.

Second, GIC “can already invest in appropriate Singapore companies if these companies have a global footprint and generate good returns”.

Third, the government believes a “more sustainable way to develop the local equity market” is to build a better listing pipeline and help SGX-listed companies “grow their operations and expand into overseas markets”.

“By becoming globally competitive and having a larger international presence, these companies would become more attractive to global investors,” Chee said.

Why it matters?

Reading between the lines, these three points collectively suggest Singapore stocks are not particularly attractive and do not have enough of a global flavour.

If Singapore stocks are not attractive enough for other sovereign wealth funds, the government would not be doing Singaporean retirees any favours by ordering GIC to support the local market.

Chee did not quite say this, but I infer that if DBS were to grow into a global bank – in the league of JPMorgan Chase & Co or Bank of America – and generate similarly strong returns, GIC would have an investment case to consider.

Some of Singapore’s stocks are probably on their way to meeting GIC’s investment criteria.

DBS, for instance, already boasts a return on equity that is comparable with JPMorgan’s. Its share price performance has not been as strong – since October 2005, JPMorgan shares have gained over 500 per cent while DBS’ gain is closer to 150 per cent. DBS also doesn’t have as long a track record and its geographical presence is still limited, but it has room to build that.

Unfortunately, DBS is one of only a very small number of SGX-listed companies that have managed to grow or are showing global growth intentions.

The hard truth is that so many companies just aren’t interested in expanding their businesses or engaging international investors.

Even if GIC were given the go-ahead to invest in SGX stocks, perhaps the only stocks it would be able to buy are the ones already supported by Temasek.

A key executive at a local brokerage recently told me that some Singapore-listed companies ignore requests for meetings. In comparison, he said, companies listed in the United States are always eager to jump on the chance to gain exposure with an international investment audience.

I wrote in a commentary earlier this year that a vibrant exchange is vital to Singapore’s economy and that it is necessary to consider a wide variety of ideas.

Here’s one suggestion: shareholders should increase their activism, and regulators should support them.

Japan’s blazing stock market can be linked, at least partly, to successive waves of activism.

In Singapore, several activists have already succeeded in achieving positive outcomes for minority investors.

Perhaps the most successful activist of all is Temasek. When I interviewed him, Temasek executive Nagi Hamiyeh (who at the time was head of the portfolio development group) said activism was the wrong word to describe what the state investor was doing.

He did, however, say Temasek has become much more active in its engagement with its portfolio companies. The results of that engagement have been significant share price improvements for the likes of Sembcorp Industries and Keppel.

The Internet and social media have made it possible for just about anyone to rally shareholders to a cause. A case in point is the activism of Quarz Capital, which set up a website and a Telegram chat group to campaign for various proposals related to Sabana Industrial Reit.

Quarz’s tactics have drawn both praise and criticism. Certainly, its activism has little in common with Temasek’s brand of active engagement. Nomenclature and methods aside, however, I would venture that a little more activism is what the market needs right now.

The big number: US$1 billion

That is how much GIC and Metro Pacific Tollways have paid for a 35 per cent stake in Jasamarga Transjawa Tol, a network of 13 toll roads in the provinces of West Java, Central Java, and East Java.

A press release called the 676-km-long network “Indonesia’s crown jewel”, serving 850,000 vehicles daily across the island of Java.

Infrastructure has become a hot asset class in recent years, but prime South-east Asia assets are only just beginning to become available to private investors.

Regional governments and infrastructure owners are looking for ways to recycle capital, and large investors such as GIC have the means to invest and the long-term temperament required.

These are not assets that will deliver blockbuster returns, but they will generate stable cash flows that should beat inflation – which is something any investor with pension monies will find valuable.

5 big reads

• Pictet’s Pierre-Alain Wavre sees opportunities in private equity’s countercyclical nature AFTER 35 years of investing in private assets, Pierre-Alain Wavre has learnt a few lessons: take valuations with a pinch of salt, differentiate economic risk from volatility risk, and remember that economic cycles are precisely that – cycles.
• Investor interest in F&N, Frasers Property could be shaped by aftermath of OCBC’s offer for Great Eastern BOTH companies have seen the market value of their shares languish for years, despite steady execution of various growth strategies. One reason could be their narrow free floats, which put minority investors at risk of being squeezed out by a lowball take-private offer.
• Asia’s data centre rush is making some unique skills highly desirable IF YOU have built or operated a data centre, a private equity (PE) house may be looking for you. Ditto if you know how to supply a building with consistent power in various Asian markets.
• Where have all the Chinese IPOs gone? WALL Street has not seen anything close to a blockbuster Chinese IPO in three years, and the drought is getting worse. As the geopolitical relationship between China and the US has deteriorated, it has become increasingly difficult for Chinese companies to find a foreign market where a listing might not be jeopardised by political scrutiny.
• UMS, Keppel DC Reit short interest levels rising AS THE artificial intelligence frenzy continues, the semiconductor sector in which UMS operates is becoming increasingly competitive. Meanwhile, Keppel DC Reit has traded a freehold data centre property in Australia for ownership of a structured note that observers said “does not make sense”.