GIC may include China inflation in return target

SINGAPORE Dec 31 (Reuters) - Singapore's GIC, the world's fourth-biggest sovereign wealth fund, is considering whether to include China's inflation rate in its benchmark for targeting returns, deputy chairman Tony Tan said in a magazine interview.

"We are thinking about this already because you have to," Tan told Taiwan's Commonwealth Magazine. A transcript of the interview was published in the Straits Times newspaper on Thursday.

"...countries like China will play a much greater role in the world economy and when that happens, I think it would make sense for GIC to re-look again as to whether our definition of global inflation rate as the average inflation rates of U.S., Europe and Japan is the right one or not."

Tan gave no indication on when the Government of Singapore Investment Corp could include China's inflation rate to measure its rate of return.

GIC currently targets a return above inflation rates of G3 economies. The inclusion of China -- which has a higher inflation rate than the developed economy -- would mean it may have to seek higher returns.

GIC, which manages over $200 billion, has never disclosed how much return it targets every year. It posted a real rate of return of 2.6 percent in Singapore-dollar terms over a 20-year period ending March 31, 2009.

GIC, which was hit by portfolio losses during the financial crisis due to investments in banks such as UBS (UBSN.VX), expects to invest more in emerging markets particularly in Asia due to higher growth instead of the United States or Europe over a period of time, Tan said.

GIC's portfolio shrank by more than a fifth in the year to end-March, but has recouped over half its losses since then. It pared its equities exposure before the crisis and then profited from a well-timed sale of part of its Citigroup (C.N) holding.[ID:nSIN485515]

(Reporting by Saeed Azhar; Editing by Valerie Lee)