Singapore sovereign wealth fund GIC, one of the world’s biggest investors, said it is factoring in the potential for a global recession and was prepared to stress-test its portfolio if need be.
GIC chief executive Lim Chow Kiat told Reuters in an interview that rising inflation poses a big risk and that central banks needed to get it under control to ensure global economic stability.
“Otherwise we could stare at a prolonged period of difficulties both for the economies and across the financial markets,” said Lim, who was in Sydney to open the fund’s Australia office.
Fears of a global recession continue to grow amid challenges posed by Russia’s invasion of Ukraine, an inflation-driven cost-of-living crisis and a sharply slowing Chinese economy. The International Monetary Fund, while forecasting global growth of 2.7% in 2023, warned this month that countries accounting for about one-third of the global economy are poised to contract this year or next.
“We expect more slowdown … we do not know the extent of that or how far it will go,” Lim said.
“As an investor we would certainly stress test our portfolio. When we underwrite a deal we will have to consider the scenario of recession,” he added.
Lim also said, however, that he was confident global central banks could contain inflation and eventually bring it down.
GIC is ranked as the world’s fifth-biggest sovereign investor with US$690 billion in assets, according to research firm Global SWF. The fund has said its assets are worth more than US$100 billion.
Lim also said that GIC is looking at opportunities in Australia’s renewable energy industry and related sectors, as the country’s economy has been comparatively resilient.
“As every country deals with this inflation challenge, we think Australia can handle this relatively well,” he said.
While Australia currently accounts for a very small share of GIC’s portfolio and is largely limited to real estate assets, the country has the potential to play a big role in the global energy transition, Lim said.
“If there are suitable projects or assets in Australia, our infrastructure team will definitely want to look at it very closely,” he added.
Lim also said China will continue to be a focus for GIC, which counts e-commerce behemoth Alibaba Group Holding and food delivery giant Meituan among its investments.
“For many years, China has done a great job in their reform and opening-up policy. We expect China to continue to do so. The general direction of China emphasising growth and reforms – we don’t see any change to that,” he said.