The particular shift to a potentially high-inflation regime, for just one, has “significant” investment implications.
“High inflation not just reduces real earnings immediately, but its adverse impact on economic stability raises the risk premia on financial resources, ” GIC stated in its report.
“Portfolio diversification may also be more challenging as couple of assets are spared from the effects of deteriorating inflation and slower economic growth. ”
GIC’s team chief investment officer Jeffrey Jaensubhakij, who had been also at the mass media briefing, laid out various other headwinds.
Within the near term, the world will have to contend with additional monetary policy tightening by central banking institutions to combat constantly high inflation, together with supply disruptions and fading fiscal incitement. Challenges over the longer run include high debt levels developed in the global economy, a slowdown of favourable demographics within countries like China, and waning globalisation.
Geopolitical shifts, such as a fractured global power structure plus intensified rivalry between key economies, furthermore contribute to an increasingly uncertain environment.
Simultaneously, key trends like the low-carbon transition plus technological advancements, are usually two areas that will present both risks and opportunities. For instance , the latter will carry on and disrupt jobs plus businesses, but it may also be a source of financial growth and expenditure opportunities.
“The environment is uncertain – it has been for a while but it’s not getting any better, ” Mister Lim told reporters, while Dr Jaensubhakij noted that a landscape filled with headwinds implies that its “portfolio will still be difficult to manage”.
Asked what this means regarding GIC’s future investment decision performance, Mr Lim noted that the sovereign wealth fund offers for a number of years posited that returns going forward “will likely be low”.
“Unfortunately, until we have more of so-called restoration of value – whether it is bond yields, earnings yields or dividend produces – return potential clients are still not great. ”
SHIFT PORTFOLIO, INVEST MORE IN INFLATION-RESILIENT PROPERTY
Nonetheless, GIC said it will navigate these uncertainties by pressing on using a diversified portfolio, sustaining price discipline plus exploring alternative techniques.
It is also planning ahead of time by being “in companies or resource classes that can hold out better”, said Dr Jaensubhakij.
For just one, the investor is constantly on the deploy more money into real assets like real estate and facilities, which offer protection against inflation and have generally outperformed nominal bonds in a high-inflation environment.
It additional that it has ramped up headcount in this field by more than 35 per cent over the last 3 years to bolster its investing capabilities.
In addition , the sovereign wealth fund elevated its allocation in order to certain high-growth resource classes within equities, such as private equity, citing returns that can keep pace with raised inflation.