A troubled world re-shapes the asset pricing regime
The one thing that tiny Singapore has global scale in is the sheer size of its national savings, which play a crucial role. Managed principally by GIC and Temasek, these savings provide Singapore with a buffer against extreme emergencies — the large government support schemes during the Covid pandemic were an example of this. The returns from those savings have also become a very large contributor to the government’s Budget. Thus, preserving those savings and ensuring a good return from them are vital to Singapore.
Regrettably, the more troubled world we are living in means that financial markets now operate under a new asset pricing regime which makes preserving wealth and generating decent returns far more challenging than in the past 40 years. Those years saw falling bond yields boost valuations while globalisation and China’s super-charged development provided huge opportunities for companies to build earnings. These strong tailwinds to investors are unlikely to be repeated. That means Singapore needs to re-think its model for managing its vast pool of savings, right down to basics like how its investment management institutions are structured, what mandate they are given and how their performance is measured.
