Asia 'needs to boost financial markets'

Underdeveloped sector in way of large transactions, says GIC head Tony Tan

Dr Tony Tan (right) with Taiwanese President Ma Ying-jeou yesterday at the Formosa Regent Hotel before the CommonWealth Economic Forum. -- PHOTO: YANG YEN-TIM FOR THE STRAITS TIMES

TAIPEI: Emerging markets are becoming more attractive as investment destinations, but their underdeveloped financial markets are standing in the way.

Financial markets in Europe and the United States remain the largest and deepest in the world, Government of Singapore Investment Corporation (GIC) deputy chairman Tony Tan said yesterday.

And they have the most flexibility and ability to absorb large transactions from huge investors.

Speaking in an interview with Singapore media based in Taiwan on the sidelines of the CommonWealth Economic Forum, he said that when GIC decided to pare down its holdings in New York-based Citigroup to less than 5 per cent last year, it had to sell more than a billion shares on the open market.

'Within two weeks, it was absorbed by the markets without affecting prices at all,' he said.

When it comes to buying bonds, the US market is also still the most liquid in the world, said Dr Tan, adding that one can have billions of dollars of transactions on any one day without affecting the market price.

'GIC expects that we'd be investing more money in the emerging markets, particularly in Asia, in this decade,' he said.

But Asian markets still do not have the ability to absorb large transactions, he noted. The challenge for these Asian markets is how to increase their size and depth.

'But they are coming along well,' he said. 'Certain markets, for example in Hong Kong, have developed rapidly. I think the Singapore stock market is also growing, although it is much smaller.'

Dr Tan picked out China, India, Indonesia and Vietnam as the likely stars as Asia enters a possible 'golden age' in the next 10 years.

He also said that economies like Singapore and Taiwan could do well. They are small but nimble enough to 'spot trends, ride on them and have the right policies', he explained.

'Singapore ministries can work very well together,' he noted. 'It keeps the ability to respond much more flexibly and quickly.'

He also added that GIC had been investing in Taiwan for many years.

'For us, we try to look at companies which have world-class capabilities, and I think in the case of Taiwan, tech companies have certainly been at the forefront of Taiwanese industrialisation,' he said.

Asked if GIC expected to put more than half of its investments into Asia by the end of the decade, Dr Tan said it 'had no specific allocation'.

GIC's investments are valued at well over US$100 billion (S$139 billion), and are estimated by analysts to be worth between US$200 billion and US$300 billion.

Asia formed 24 per cent of GIC's investments as at the end of its financial year ending March 2009. The Americas made up 45 per cent, while Europe accounted for 29 per cent.

Commenting on the 20 per cent loss in value of GIC's portfolio in Singapore dollar terms in the last fiscal year, Dr Tan said GIC would do well because stock markets have done well.

'We were very liquid in the beginning of 2009, and by the third quarter of 2009, our holdings of equities have gone back to their normal levels.'

Source: Straits Times, 19 Jan 2010.