GIC Says China Slowdown to Affect Outlook for Global Investments

GIC Pte, manager of more than $100 billion of Singapore's reserves, said China's slowdown and credit crunch will affect global investments even as the fund plans to maintain its holdings in the nation.

"It's systemically important," GIC Chief Economist Leslie Teo said in an interview yesterday, calling the nation a "key driver for global markets. ''It will affect global equities, including private equity. It will also affect emerging-market equities.''

China's ruling Politburo this week pledged to stabilize growth while pressing on with economic reforms to ensure the country meets a target of expanding at a 7.5 percent pace this year, a goal that could be under threat after a second straight quarterly slowdown. Authorities also want to counter mounting debt risks, with policy makers ordering an audit of government borrowings this month and engineering a money-market cash squeeze in June to encourage banks to better manage liquidity.

The nation's benchmark Shanghai Composite Index (SHCOMP), which doubled in 10 months through August 2009 as the government poured $652 billion of stimulus into building roads, railways and housing, has tumbled about 43 percent earlier this week from its high, destroying $748 billion in market value.

China's government yesterday pledged to prevent growth from slipping below a ''reasonable" level as manufacturing gauges gave a mixed picture of the strength of the world's second-biggest economy.

Positive Prospects

GIC said it remains invested in China because the slowing growth as the result of government reforms is positive.

"The Chinese recognize the need to reform and actually are actively taking measures," Chief Investment Officer Lim Chow Kiat said in the same interview. "The long-term prospects of such efforts are actually very positive."

GIC kept its allocation for North Asian markets unchanged at 13 percent of its portfolio as of March, it said in its annual report released today. The region includes China, Hong Kong, South Korea and Taiwan.

"In this environment, foreign investors are not going to give China the benefit of the doubt," Geoffrey Lewis, global market strategist at JPMorgan Asset Management in Hong Kong, said in Singapore this week. "It will be a case of show me the money, show me that you can stabilize your economy and then I will invest. But of course, valuations now are historically very, very cheap."

The Shanghai Composite Index is trading at 8.9 times estimated earnings, the lowest in Asia after Pakistan, according to data compiled by Bloomberg.

Complicated Economy

China's gross domestic product rose 7.5 percent in the second quarter from a year earlier, down from 7.7 percent in the previous period, extending the longest streak of sub-8 percent expansion in at least two decades. Officials on July 25 ordered more than 1,400 companies in 19 industries to cut excess production capacity this year, part of efforts to shift toward slower, more-sustainable economic growth.

Chinese leaders "have explicitly talked about 7 percent being the floor and they have even last week put in place some stimulus measures," Lim said. "We are confident that policy makers are on top of the situation. But because it's such a complicated and big economy, you want to make sure you are monitoring it very, very closely."

GIC has stakes in at least 40 listed Chinese companies, according to data compiled by Bloomberg. The investment firm owns 11 percent of the Hong-Kong listed shares of China Pacific Insurance Group Co. (2601) and a 22 percent stake in Beijing Capital International Airport Co. (694), the data shows.

Temasek Holdings Pte, Singapore's other state-owned investment firm and the biggest foreign investor in Chinese banks, last month said it's not concerned by a cash crunch in China and plans to increase its assets in the nation.