Placash: The global investment environment in the change

Steering wheel

At present, the international community is trapped on three sides, and the public health crisis, economic crisis and financial turbulence occur at the same time. This combination is unprecedented in modern history.The extreme measures to maintain a safe distance have triggered the worst global recession since World War II.The future of the investment environment becomes particularly vague.This crisis also highlights the market fragility that the Singapore Government Investment Corporation (GIC) has emphasized in the previous year and accelerated several changes that might change the global investment pattern in the future.

Before the outbreak of the coronal virus epidemic, due to the increasingly weakened economic fundamentals, limited policy space and uncertainty of geopolitics, we believe that asset prices are not enough to compensate the level of risk we are facing.And according to the potential unfavorable scenarios, the portfolio and investment sector were under pressure testing.This defensive position enabled the combination to get a multi -layer buffer in the first quarter of the first quarter of the financial market in 2020.

High debt and low interest rate

Nowadays, economic growth, low production efficiency and geographical environment are difficult to change in the short term. Several changes are in progress. In the future, it may trigger a reduction in return on investment and further enhanced market turbulence.

1. New policy under high debt and low interest rate

The long -term interest rates of the global markets before the crisis are already very low, at least the lowest level in the past 140 years.The reason behind it includes not only the central bank policy, but also the relatively long -term trend such as slow population growth, weak productivity growth, and more savings than investment.

Due to the existence of low interest rates, more and more enterprises have reorganized the balance sheet of the balance sheet through debt and reduced the proportion of equity financing, which has steadily pushed the level of corporate debt.The practice of share repurchase has indeed played an important support for the stock market, especially in the United States.However, funds are raised by issuing debt to support shares repurchase, but it increases the vulnerability of the balance sheet.

When we will eventually go out of this round of crisis, the global debt burden will be higher.Enterprises will have to increase borrowing to ease the dilemma caused by the decline in revenue in economic weakness.The huge corresponding measures launched by various countries have also greatly increased the level of government debt and transferred risks to the government's balance sheet.These high -profile debt levels will affect interest rate adjustment in turn. Policy makers hope to avoid the desire to avoid the economy due to increasing interest rates, which will be more difficult to achieve.

So far, the rapid policy response and interest rates of various countries have pushed up asset prices and reduced the possibility of deeply trapped in the financial crisis.When the world is reduced to zero -based interest rates or has reached negative interest rates, the central banks need to seek more and more non -traditional economic support methods.The central banks of many countries have broaden the scope of buying assets and reduced the quality of necessary guarantees.

Policy transformation of policy formulation

The policy environment is undergoing two fundamental changes.The first change is related to monetary policy.At present, the main central banks are unlikely to actively act in advance due to the signal of inflation and warming; on the contrary, they can more tolerate the inflation level that exceeds the policy goals.This is very different from the past.Previously, if the main inflation indicators showed inflation, the central bank often increased interest rates to suppress economic activities.

The second item is the greater role of fiscal policy in stimulating the economy. After all, the policy space for the central banks to reduce interest rates is already limited.The total scale of each financial stimulus plan is expected to reach US $ 11 trillion. The stimulus scale in developed economies accounted for almost 20%of GDP and 5%of emerging economies.

On the one hand, the global economy is deeply trapped, which leads to a decrease in taxation and the increase in government transfer payments; what is even more worse is that the stimulus plan will further promote government debt. The government debt that is pushed up in only 2020, which is likely to reach Global GDP worldwide.19%.Not all countries can afford this large -scale stimulus plan and worry about how to raise funds for the stimulus plan may also drag their performance in the bond market, especially in those low -income economies, and economies that depend on foreign liquidity economies.What's more in it.

Related to this, a greater degree of hidden or explicit coordination between fiscal and monetary policies is reflected in monetary policy support for financial plans to pry more resources, increase the purchase of government debt, or keep government financing costs low at a low level.Wait.The combination of monetary policy and fiscal policy is indeed essential to support the economy of a country; however, once the economy recovers normal, these policies will face the dilemma of difficulty adjusting or exiting.

The changes in these policy environments may change the investment environment in two ways:

The risk of high inflation in the mid -term increases: If the central banks are still interested in maintaining low interest rates without adjusting the economic activity, the economy may be overheating and the upward pressure on price will be more prominent.Because there is still a strong weakening power in the current environment, such risk scenarios can be fully appeared in the mid -term.If this risk scenario really appears, an unprecedented and unexpected investment environment will be formed.The correlation coefficients of stocks and bonds may turn to positive, which will make the diversified asset allocation more difficult.

Foreign exchange fluctuations may have a greater impact on global investors' asset returns: Due to the decline in interest rate conduction efficiency of monetary policy, all parties will pay more attention to increasing measures to increase the purchase of government debt and the upper limit of interest rates for government debt, but it may also cause triggered it may also cause triggersCapital escape and currency depreciation.

These transformations have different degrees of occurrence in different countries and regions.Whether investors have a full understanding and can be available in advance will become a key part of whether it can move forward in the investment environment.

2. Globalization encounters stronger against wind

The crisis of the crown disease has triggered a major concept to enter the public vision, that is, each company emphasizes the toughness of development more than before.They are reorganizing the layout of the global supply chain to improve the stability of the supply chain and reduce complexity.They may increase the speed adopted by technology and introduce technical means such as senior robots, additive manufacturing and digital content.This can help it shorten the supply chain and reduce the risk exposure of the relative trade of commodity production.Enterprises will also seek multiple locations in the production base, or move the production base to a place closer to the country.After the crown disease epidemic, the global supply chain may experience major structural changes.

The changes in domestic policies also play a role.Regarding the concerns of national security, the pressure of supply chain reflux of supply chain such as drugs, medical equipment and technology has been generated.The restrictions on the flow of personnel and capital have also exacerbated the trend of protecting domestic interests.

The nervous US -China relations are still a strong anti -wind, and the tension will rise before the US presidential election in November 2020.So far, the United States has excluded China from its information and communication technology industry chain and restricted China ’s technology and materials developed by the United States. In the future, more technology may be issued.In the strategic fields such as medical and national defense, there may be more return to the United States.

China's countermeasure strategy is to replace specific industries such as medical care and use local suppliers to replace suppliers in the US IT field, and arrange production closer to large terminal markets, such as production support in Mexico.

To some extent, these transformations bring a more stable system.All manufacturers who have been lean management before are considering the introduction of redundant design in the system.Enterprises are also developing diversified suppliers, as well as standardized components and processes, modularized management, and easy replacement of modules.Although global manufacturers are no stranger to these changes, the crisis does highlight the necessity and urgency of such changes in the future.These changes will ensure that the supply system of goods and products is more secure and stable.

If the globalization occurs, if a major retreat, it will drag the further development of productivity, because it hinders one and global allocation of resources, and more competition between enterprises will be competitive, and the technical transfer.This will weaken the channels for enterprises to obtain cheap and high -quality production materials, and reduce consumers to obtain low prices and various typesThe possibility of products and services.This will particularly create emerging markets that traditionally rely on exports and foreign investment growth models.

3. Asia will encounter stronger reverse wind, but its performance is still better in the long run

As we emphasized in the special article last year, GIC has been committed to supporting Asian economic growth over the past 30 years.We have confidence in the toughness of Asian development, not only from the continuous improvement mechanisms and macroeconomic policies in this area, but also the growth of its exports and trade in the region.However, there are also important differences in the fields of development, economic structure, and institutional capabilities in various Asian economies.In Asian countries, in response to the popularity of the crown disease, they have shown different abilities, and economic recovery may be difficult to synchronize.Therefore, differences between countries should be more valued.

The impact of the outbreak of the crown disease on Asia's economic growth is huge.For example, China's GDP in the first quarter of 2020 decreased by 6.8%year -on -year.Many Asian countries have quickly adopted strict virus curb measures and strong policy support.So far, these measures have been displayed in several countries such as China and South Korea, showing the effects of strong flat virus curves.

However, the economic recovery will not happen overnight, because the markets are at different stages of virus transmission, and there may be subsequent wave epidemics. Normalization of supply will gradually realize, preventive savings will remain high, and external demand will continue to be sluggish.

As mentioned in the previous section, the diversification of global supply chains may also speed up to avoid being concentrated in China.This diversified part will cause production to return to their respective markets, but many companies are turning to other Asian economies such as Taiwan, India, and Asia.For example, since the US -China trade war began at the end of 2018, foreign direct investment registered in Vietnam has accelerated.

As we have seen in the past, even in the face of huge uncertainty, governments, enterprises, and people in Asian countries have also demonstrated their resource deployment capabilities to adjust the economic growth model.The treatment of the crisis of the crown disease also shows the maturity of mechanisms and governance capabilities in Asia.We believe that in the next few years, investment in the medical and health system will increase, and the positive chain effect will also occur. For example, the Congress will formulate a more fully popular plan for future popularity, the improvement of the life expectancy of the people, and the improvement of the quality of life.

In the long run, Asia can continue to grow from the first, urbanization and middle income, and the investment in infrastructure and human capital, as well as the regional deep -level integration process of various economies and capital markets to obtain stable growthEssenceAlthough the risks caused by major emergencies have indeed risen, the above three factors should be able to support self -maintaining growth in Asian countries such as China, and to promote the long -term performance of these countries.However, considering that in the future, multiple challenges such as globalization encounters are stronger, and governments of Asian countries must unswervingly promote structural reforms in order to support its potential economic growth rate and make a stronger adaptation to the global rapid economic pattern.

Further improvement of industrial concentration

The crisis of the crown disease has greatly weakened the financial resources of many companies, especially small and medium -sized enterprises.Many companies will be forced to apply for bankruptcy, seek additional funds, merge or other strategic options.Although all countries have introduced financial plans to support the enterprise sector, the default rate of listed companies around the world has reached its highest level since the global financial crisis.This situation will continue to rise in the short term, and if the crisis crisis continues, it may accelerate the deterioration.

When investors show strong preferences for companies with more tough balance sheets and business models, the market also reflects these developments.Small businesses may be more vulnerable to industrial concentration.At the beginning of the crisis, many small companies were already in high -leveraged debt, while facing continuous competitive pressure such as scientific and technological subversion.Unless it is caught in a regulatory lawsuit, due to its strong financial resources and technical advantages, large companies may occupy the upper hand and evolve into larger and stronger companies.

In addition, in June 2020, the total amount of private equity funds can reach a record high, which can provide more support for future industries.During the difficult time, long -term investors may also play an important role through providing funds for high -quality enterprises.

How does GIC cope with the rapidly changing environment?

The cyclical crisis is the characteristic of the global financial market, and it is also an inevitable aspect of long -term investment.The lessons from GIC's past investment history will help strengthen our response to the current challenges.

First of all, the most important point is that we must have a deep understanding of who we are, including our duties, values, risk tolerance, ability and limitations of all aspects.This in turn has shaped our two key investment principles: preparation rather than predicting and focusing on long -term.

Preparation rather than prediction: prepare for the potential consequences of higher downlink risks, we conduct pressure tests for hypothetical and consensus perspectives in a series of different scenarios.Diversity is critical to building a tough investment portfolio, because we realize that we have a lot of unknown places for the future of the unpredictable change. We must quit arrogance and irritability.At the same time, we will do our best and persist in studying, and prepare for the optimal party's policy.

Focusing on long -term MDASH; mdash; this is an indispensable organic composition in our institution's responsibilities and investment methods.Because the return on investment will eventually reflect the fundamentals within a long enough time, we emphasize that we are paying attention to basic trends rather than market emotions.We will continue to establish long -term partnerships and capabilities to provide flexible funds.

Considering the uncertainty of high asset valuations and the existence of the above -mentioned structural problems, we are facing the permanent damage risk of a higher investment portfolio.Therefore, the first priority is to control risk at the overall combination level.In addition, when we invest in cases, we will emphasize toughness and selectivity, and we will also make full preparations to make good use of market volatility and seize those opportunities with good risks/return ratio.

Finally, we need to maintain our own toughness.The popularity of crown disease not only triggers extreme market fluctuations, but also affects the operations of 10 offices. The attributes of the crisis itself have launched a test of the planning capabilities of the sustainable development of our business.The impact of the crown disease may continue, and this known unknown event may appear more frequently in the future.We need to ensure that our operations, digital infrastructure and personnel can continue to work, especially the tests of these difficult times.

Due to the uncertainty of investment brought about by the crown disease, we need to maintain alertness, agility and toughness in the future long roads.We will continue to adhere to core values and investment principles, further improve investment strategies and processes, and do our best to achieve long -term stable returns of the management of reserve assets.

The author is the chief economist of Singapore Government Investment Corporation (GIC)