Finding 2019 the Middle Summary Report Ground 2019 Summary Report Contents 4 5 7 11 14 17 About Foreword Changing Innovation Navigating Participants GIC Insights World Order 4.0 Uncertainty 4 About GIC Insights Established in 2016, GIC Insights is GIC’s annual flagship event that gathers a select group of prominent global business leaders to connect with each other and discuss long-term issues pertinent to the international business and investment community. The theme for 2019 was Finding the Middle Ground. Finding the Middle Ground We are in unprecedented times. Global economic prospects are increasingly uncertain, governments have limited policy ammunition, and populism and protectionist pressures continue to rise. Businesses face changing supply chain dynamics and slowing earnings growth, and investors are dealing with increasing volatility and falling returns. Technology continues to rapidly advance and disrupt, but externalities alongside the possibilities increasingly need to be assessed. Given an increasingly polarised world, finding the middle ground between the key economic powers, growth and inclusiveness, as well as risks and opportunities for investing and technology will be top of mind for all stakeholders. At GIC Insights 2019, we discussed these issues and the implications for investors and businesses. 5 Foreword LIM CHOW KIAT, CEO, GIC Welcome to the fourth edition of GIC Insights. In these factious times, investors are hard put to find their footing. They face rising uncertainty but INSIGHTS THEME: “FINDING THE falling returns. By some measures3, uncertainty MIDDLE GROUND” about economic prospects is currently highest on We are at a turning point. Witness the profound record. Further, policymakers seem to have limited challenges spanning geographies, businesses and ammunition to reflate economies. Interest rates are capital markets. Starkly, the geopolitical mood has already at depressed levels. Negative-yielding bonds soured. We have seen rising populism, societal are no longer a market oddity. As at mid-August divisions, trade protectionism and decline in the 2019 they accounted for 1/3 of the global tradable ability of governments and markets to deliver broad- bond universe4 or a valuation of US$17 trillion. Does based prosperity1. Greater income inequality, which this development, with investors essentially paying has reached a 50-year high in OECD2 countries, is a fee for holding less risky assets, portend a deep said to be responsible. In particular, the stagnation deflationary spell for the world economy? Yet, faced of real income in developed Western economies in with potential opportunity costs of missing out on the last three decades has ushered in voter strife, positive returns, investors have also been moving into hollowing out conventional mainstream politics. This, more risky assets. It is a quandary. coupled with the corresponding gains by many open Nevertheless, amidst the spate of worrying trading economies such as those in Asia, has raised developments, there are new investment geopolitical tensions. Globalisation has borne much opportunities. Technology, for one, offers immense of the blame, even though these developments investment possibilities as the pace of innovation reflect more fundamentally domestic policy failures in here is breathtaking. Technological breakthroughs coping with technological and economic changes. Is like Artificial Intelligence (AI), 5G, blockchain, the there a "middle ground" that we can settle on? How Internet of Things (IoT) and even those that are much can we count on the high inter-dependency in not yet known today will be disruptive and create this globalised world? 6 new industries, satisfy unmet needs and solve the Our second guidepost is to Focus on the Long investee companies. Many of those who attended problems of tomorrow. This is also where we already Term. This long-term perspective is integral to who GIC Insights have been partners of GIC for a long find the middle ground, between technology and we are and how we invest. When GIC was set up time, and we look to forge new relationships with traditional companies. The convergence of their in 1981, it was with the explicit instruction to invest more partners. business models are producing many interesting for long-term returns for the benefit of both current The journey ahead will be a difficult one, but together investment opportunities in the overlaps. and future generations of Singaporeans. We invest we can create more win-win opportunities and by with a mindset of looking over cycles to assess How will GIC seek to deliver on its mission in this doing so, contribute to the wider communities that we value and to benefit from harvesting long-term risk complex environment? invest in over the long term. premia, capitalising on short-term dislocations, and building lasting relationships with our stakeholders GIC’S APPROACH and partners. Importantly, this mindset impels us to [1] Edelman Trust Barometer 2019; McKinsey Report June 2019: Inequality: A persisting challenge and its implications look beyond short-term headlines and to position for [2] OECD Social Inequality Database http://www.oecd.org/social/inequality.htm As Singapore’s sovereign wealth fund, GIC’s singular [3] WUI (World Uncertainty Index) was developed by Hites Ahir (MF), Nicholas Bloom (Stanford durable trends such as the rise of the middle-class University) and Davide Furceri (International Monetary Fund). They construct quarterly indices mandate is to preserve and enhance the international of economic uncertainty for 143 countries from 1996 onwards using frequency counts of in Asia, the innovation engine of the US and the “uncertainty” (and its variants) in the quarterly Economist Intelligence Unit (EIU) country reports. purchasing power of the reserves under our The EIU reports discuss major political and economic developments in each country, along with sustainability leadership of Europe. analysis and forecasts of political, policy and economic conditions. They are created by country- management over the long term. As we pursue our specific teams of analysts and a central EIU editorial team. WUI as at 2Q 2019 based on GDP weighted average from 1996. mission, we also aspire, through our long-term capital Our third guidepost is to Build Capabilities and [4] Calculated as percentage of total outstanding bonds in Bloomberg Barclays Global Agg Index at 15/8/2019. and partnerships, to contribute to the communities Partnerships. When faced with uncertainty, it is that we invest in all over the world. Our capital and advisable to have optionality. Tactically, that may be expertise help to build enterprises and infrastructure raising some cash as dry powder. The more durable in these communities, enhancing their well-being. efforts are: Our approach to attaining these goals are shaped by Building capabilities, which means constantly working three guideposts. on getting better at what we do, innovating, and learning. Especially in these times of challenging Our first guidepost is the maximKnow Thyself. broad market returns, we need expertise in pro-active This calls on us to keep our eyes resolutely on sourcing of investments, due diligence and ongoing our mandate, organisational values, strengths asset management capabilities. In recent years, and weaknesses. Our mandate to preserve and we have made good progress in various domains, enhance the real value of the national reserves increasingly becoming a choice solution provider for translates to giving priority to prudence. We many investees and partners. There is much more to emphasise diversification, robustness in constructing do, and we will continue to work hard on this. our portfolio and the discipline to modulate our risk exposure as valuations are appraised to Building partnerships, which means deepening and be unattractive. expanding our networks of like-minded partners and 7 The world economy is undergoing dramatic shifts with China surpassing the US to be the world’s largest economy based on purchasing power parity. Rising trade tensions have dampened global trade and investment flows and increased volatility in Changing the financial markets. China’s evolution, from being the world’s factory to global entrepreneur and innovator, is being met with international security concerns and protectionism at a time when Beijing seeks fresh balance between its growing global role World Order and national aspirations. Amid this challenging economic climate, one topic discussed at GIC Insights 2019 was the “Changing World Order”. The session was moderated by GIC Chief Economist Dr. Prakash Kannan, with panellists Kevin Warsh, Shepard Family Distinguished Visiting Fellow in Economics at the Hoover Institution, Stanford University, Dr. Zhou Xiaochuan, President of China Society for Finance and Banking, and former People’s Bank of China Governor, and Dr. Weijian Shan, PAG Chairman and CEO. It also drew from THERE WILL BE MANY interesting perspectives from the crowd, including Piyush Gupta, CEO of DBS Bank, and Xavier Musca, Deputy Chief Executive RESPONSIBILITIES, AND Officer at Crédit Agricole. LIABILITIES, IF THE RMB EVOLUTION OF CHINA’S GROWTH has created huge demand for goods, services and IS TO BE USED AS A STRATEGY housing as about 350 million people – or roughly the RESERVE CURRENCY. same size as the entire US population – moved into The growth of China’s economy over the last 20 towns and cities over the period. MORE INTERNATIONAL years has been remarkable, with China’s share of DISCUSSION AND CO- global GDP (in PPP terms) rising from about 7% to In recent years, China has taken on a “high-quality ORDINATION, AS WELL 19%. It has overtaken the likes of Japan and the US to development” growth strategy, comprising three become the world’s largest economy since 2015. focus areas: AS NEW FUNCTIONS AND INSTITUTIONS, Accordingly, China’s growth model has evolved, 1. Technology: Using science, Artificial Intelligence starting with exports as a key driver in the early and other technology to transform the WILL BE NEEDED TO 2000s. Following the Asian Financial Crisis in the manufacturing and services sectors, MOVE INTO SUCH A late 1990s and China’s entrance into the WTO 2.