While China leads the world in sectors such as green technology, it is difficult to make a top-down allocation at the moment, so GIC has adopted a bottom-up approach to investing in the country, the Singaporean sovereign wealth fund’s CEO Lim Chow Kiat said at the 10th Milken Asia Summit in Singapore.
“There are themes that GIC believes in within China. For example, consumption is a big theme in the country. However, more resources need to be put in deal-by-deal in these themes, with the on-the-ground team going in-depth into the various asset classes within the themes to find the investment opportunities,” said Lim.
Bottom-up investing refers to investing by analysing company-specific fundamentals like financials, supply, and demand, and the kinds of goods and services offered by a company rather than looking at big-picture economic factors.
“The composition of GIC’s asset allocation is therefore changing but there are sectors we are doubling down on within the country,” Lim added.
GIC, along with Temasek, is one of the biggest sovereign investors in China, according to research by Global SWF.
“China’s development model is being rebuilt and it is relooking at its economy after the pandemic” the executive noted, adding that the country is also “deciding what kind of model in the longer term it needs to adopt, to be able to continue generating good growth and jobs and standard of living for its people”.
“The situation is complex and so, for investing in China, you have to get more granular, looking at sectors, companies, and valuations.”
Economic data from China in 2023 has been lacklustre and some institutional investors have become more cautious about their exposure to world’s second-largest economy.
GIC’s 2022 results also showed that sovereign wealth fund has increased its infrastructure portfolio by five times since 2016, deploying anywhere between $10 billion to $20 billion in new commitments a year.
“GIC is open to increasing allocations if good vehicles and assets are available,” said Lim.
The wealth fund was the leading sovereign investor in renewables in 2022, deploying more than $3 billion in the sector.
Its biggest transaction was the acquisition of a stake in Hong Kong-based InterContinental Energy as the company ramped up solar and wind-powered green hydrogen developments in Australia.
Lim said that as energy-related areas of infrastructure investment are becoming available, GIC is also looking at "demand-side energy efficiency solutions" along with traditional investing in supply-side solutions.
One example is investing in smart meters, which enhance demand-side energy efficiency by helping consumers and utilities to better manage and reduce energy consumption during peak demand periods.
The fund recently invested in Genus Power and Infrastructure Limited in India, a smart metering platform in which GIC has a 74% stake. The Indian government has ambitious plans to install 250 million digital meters in the country by 2025, with an estimated investment of $30 billion.
“We are trying to find more places to deploy capital in this space”, he added.
INVESTING FOR THE FUTURE
GIC is also focusing on artificial intelligence (AI) investments while keeping a watchful eye on valuation and longer-term potential.
“From an investor's point of view, as with all transformative technology, there are some short-term hypes that one needs to be wary of while staying focused and invested so as not to miss out on the upside,” says Kiat.
GIC is cautious of short-term valuations of some early-stage startups and is very careful in deploying capital into that space, he said. AI in infrastructure, however, presents an interesting investment idea for the longer term, said Lim.
He also thinks platform companies hold strong potential to benefit from AI.
For example, if an organisation uses AI to cut costs, the true value is being created by the platform company providing this efficiency-generating solution and charging a subscription for it.
“It’s important for investors to not get caught in the front end of revenue generation but to look through the value chain and see where the value is captured,” he said.
At a macro level, the high-interest rate regime, geopolitics, technology and climate change are the four themes that GIC is focused on globally.
“The high-interest rate regime is impacting asset valuations, financing structures and there are difficulties in finding easy financing for equity deals,” said Lim. He also doesn’t see the US Federal Reserve in any hurry to reduce benchmark rates any time soon.