March 4, 2009 / 2:26 PM / 9 years ago

GIC assets slide 25 pct, "too early" buying banks


* Lee Kuan Yew says GIC "too early" buying into global banks

* Equity holdings trimmed to 45-50 percent

* GIC sticking with financials, looking at property

* Singapore GDP shrinking 8 percent becoming a probability

By Kevin Lim and Neil Chatterjee

SINGAPORE, March 4 (Reuters) - Singapore's top wealth fund GIC is looking at investing in property and private equity, after rushing into global banks "too early" and seeing its multi-billion dollar portfolio slide 25 percent from its peak.

Lee Kuan Yew, chairman of GIC, one of the world's top wealth funds, told Reuters on Wednesday he saw the healthcare sector as being resilient to the downturn, but he said the financial sector would recover.

"We'll most probably stay with the financials," Lee said in an interview. "Eventually, it must recover. It is the circulation system of the world."

Prime minister of Singapore from 1959 to 1990, Lee said GIC can weather the storm for 10 years if necessary but the city-state's economy could shrink 8 percent this year as demand for its exports slides.

Lee said GIC bought "too early" into global banks such as Citigroup (C.N) and UBS UBSN.VX, which were both hammered by the financial meltdown that quickened in the second half of 2008.

"How could we have known this was the extent of the damage? You look at all the big-name banks that have gone down, misjudged the situation, ruined their careers," he said.

"When the market fell, we went into UBS and Citi. But we went in too early. That is part of the ride."

GIC last week converted its $6.88 billion worth of Citigroup preference shares into common stock at a price of S$3.25 a share to shore up the embattled U.S. lender, realising in the process a loss of around half its investment.

Analysts estimated that the value of the fund was around $300 billion a year ago, although GIC has only said it manages well over $100 billion. For a factbox on GIC, see [ID:nGICFACTBO].

"A 25 percent decline would probably suggest an out-performance against the global markets," said Song Seng Wun, economist at Malaysian bank CIMB in Singapore.

The MSCI World Index .MIWD00000PUS reached a peak in November 2007 and has fallen almost 60 percent since then. GIC will have been shielded by its high bond and cash holdings.

Singapore's other wealth fund, Temasek [TEM.UL], also piled into Western banks such as Merrill Lynch, now part of Bank of America (BAC.N). Its portfolio shrank 31 percent -- or by S$58 billion ($37.37 billion) -- in the eight months to end-November.

SHARP ECONOMIC CONTRACTION

Lee said a contraction of 8 percent in Singapore's gross domestic product this year was a possibility and now becoming a probability due to weak exports to its key Western markets. And a further 30-40 percent drop in exports in the second quarter would mean the economy might shrink 10 percent this year, he said.

"We have to depend on world markets ... there's no running away from it, they must recover before we bounce back. But when they do recover, we will bounce back faster than anybody else," Lee said.

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For a graphic on Singapore's economy, please click:

here

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Singapore tapped its reserves, which include GIC's funds, for the first time in January to help fund a S$20.5 billion budget stimulus package to shield the economy by helping companies, saving jobs and bringing forward infrastructure projects.

"We saved for the rainy days and the rains have come," 85-year-old Lee said.

Lee stepped down as prime minister in 1990 but has remained active in politics as senior minister. He became Minister Mentor in 2004 when his son, Lee Hsien Loong, became independent Singapore's third prime minister.

Lee is credited with policies that have been crucial to making Singapore one of the region's most prosperous countries, but has been criticised by human rights groups for his use of lawsuits against political opponents and the media.

He said there would be "no purpose" in holding an election in Singapore before 2011, but the timing of a poll would depend on the health of the global economy. A general election is not due until early 2012, but speculation on early polls has been rising.

"When the government can show the people that it is making recovery efforts and that there will be a minimum of losses in jobs and in GIC revenues, it will be a good time to have a snap election," said political analyst Ho Khai Leong at Singapore's Nanyang Technological University.

The People's Action Party (PAP) has ruled Singapore since independence in 1965. It won 82 of 84 seats in May 2006 elections and has never lost more than four seats in any election. (Writing by John Chalmers; Additional reporting by Nopporn Wong-Anan, Saeed Azhar, Laurence Tan, Kash Cheong and Christina Pantin; Editing by Paul Tait) ($1=1.552 Singapore Dollar)

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