IF SINGAPORE OVERSEAS INVESTMENTS WERE BADLY HIT IN JAPAN AND MIDDLE EAST….WHAT ABOUT MALAYSIA? HAS ANYBODY DONE THE ECONOMIC ANALYSIS ON THOSE INVESTMENTS MALAYSIA MADE IN THOSE COUNTRIES TOO??

IF SINGAPORE OVERSEAS INVESTMENTS WERE BADLY HIT IN JAPAN AND MIDDLE EAST….WHAT ABOUT MALAYSIA? HAS ANYBODY DONE THE ECONOMIC ANALYSIS ON THOSE INVESTMENTS MALAYSIA MADE IN THOSE COUNTRIES TOO??

Saturday March 19, 2011

Insomnia for state investors

Insight Down South

By Seah Chiang Nee

Singapore’s ambitious overseas investments have been hit by a series of crises – from the 9/11 attacks in 2001 to the 2007 global financial crisis and recession and now the earthquake and tsunami in Japan and Middle East upheavals.

AS Singaporeans’ concern mount over the safety of millions of Japanese, a small group of state investors are probably burning the midnight oil in Singapore.

These people, who manage the two sovereign state funds with assets and investments worth in excess of US$200bil (RM610bil), are likely to be poring over possible future options.

They are not only keeping watch on the nuclear drama unfolding in Japan, but also on the spreading violent upheavals in the Middle East, where the republic has high stakes.

Recently, Foreign Minister George Yeo told Parliament that Singapore had to “adjust to changes” taking place there.

In 1999, the government began a strategy of investing heavily in overseas markets to get a higher return for the state funds.

Calling it “a second external pair of wings,” the city pushed massive investments abroad.

It was a good concept that was soon adopted by other countries.

The two sovereign funds are Temasek Holdings, which operates a portfolio of US$142bil (RM432,72bil), and GIC, or Government Investment Corp, which manages foreign reserves of well over US$100bil (RM305bil).

With the local market too small for such a huge amount of funds, and competition rising from countries like China and India, the leaders turned to the outside world to find new income sources.

Besides, the world was in good shape, and emerging Asia was offering terrific new growth opportunities.

However, the foreign foray has been pushed back now and then by bad luck and a few bad investment decisions.

In the past decade, these investment wings have flapped from one air pocket to another.

The latest – a devastated Japan – is probably the worst.

Its nuclear crisis is spewing serious fallouts towards Singapore’s recovering economy.

It had been one crisis after another for Singapore, from the 9/11 terrorist attacks on America in 2001 to the 2007 global financial crisis and recession and now the Middle East upheavals.

All these have wreaked various degrees of damage on Singapore’s ambitious overseas investments.

People are hoping Saudi Arabia – the most important country in the Middle East – remains safe.

During the financial crisis, Temasek Holdings reported that its assets had plunged by S$55bil (RM168bil). Only in July last year had it recovered 40% of that.

Even discounting a nuclear nightmare, Japan – which is the world’s third biggest economy and one of Singapore’s top trading partners – faces years of economic struggle.

It will have to divert hundreds of billions of dollars to rebuilding shattered infrastructure by using its reserves, selling bonds or by reducing overseas spending.

“Knowing their nationalistic fervour, it will not be a surprise if Japanese corporations worldwide start soon to divert funds back home,” said a stock researcher.

The Japanese will likely buy or invest less in Singapore and the number of tourists will likely drop.

Japan ranks as one of the five economic pillars that sustain Singa-pore’s prosperity, next to the United States, Europe, China and South-East Asia.

According to statistics, it is the republic’s sixth largest trading partner in 2009 with total trade amounting to S$44bil (RM105bil), and the third largest investor with S$51bil (RM122bil).

All these crises serve a lesson for Singapore.

The sanguine environment which existed before, favouring smooth foreign profits, may no longer be around.

Recent history has shown that it now calls for more than just business acumen and investment timing.

There must also be the ability to analyse international affairs.

From 1999, Singapore’s billions of state funds began travelling around the world.

It went into buying local companies, which makes the government the biggest single shareholder of a long list of major companies.

After the turn of the century, the foreign investments grew in number and size.

The buzzword then was “global strategic investments”.

This often involved banks, telcos, airlines and companies that were considered crown jewels by the host countries.

Singapore wanted them for long-term global tie-ups.

“Big-time investment calls for big bucks and bullet-biting because it can be very risky,” an experienced market researcher said.

“Even the most experienced would need luck.

“People pray that after putting their money in, there will be no sudden political upheaval or natural calamity that could blow away their investments.”

Other worries include terrorist attacks, currency changes, market turmoil, unpredictable policy changes – any one of which can overturn a billion-dollar investment.

The Singapore Government’s large-scale investments – and recent losses abroad – have run into public criticism on two grounds.

Firstly, many Singaporeans believe that the investment money comes from indirect taxes and a high imposition of fees “squeezed” from the citizenry. All these seem to be rising.

Secondly, a persistent economic gap between rich and poor that seems to be widening, and fast becoming a source of public unhappiness.

It is popularly felt that a portion of the billions should be used to provide a safety net for the poor, the aged and the unemployed.

With so many needy people around, it makes no sense losing billions, by investing in a risky world, that could be put to better use helping the poorer class.

Another popular viewpoint is that the sovereign wealth funds may not have the best people to handle so big a task.

Their performance has so far not been brilliant.

Morgan Stanley said in a report that their investment decisions were poor.

“The sheer domination of the government in the external economy means that responsibility for the poor returns must lie with the government to a large degree,” it added.
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