Lower returns on bonds and stocks a concern for investors: GIC

By Linette Lim
POSTED: 21 May 2013

Lim Chow Kiat, group chief investment officer of the Government of Singapore Investment Corporation, says lower returns on bonds and stocks in the next 10 years are a concern
for investors.

SINGAPORE: Lim Chow Kiat, group chief investment officer of the Government of Singapore Investment Corporation, has said that lower returns on bonds and stocks in the next 10 years are a concern for investors.

Citing different portfolio models, he said the average annual return on bond yields will be about 1.9 per cent over the next decade, while equities may offer a 1.6 per cent median real return a year during that period.

Mr Lim was speaking at a conference on Tuesday.

Global interest rates have been on the decline for the past 30 years, and that has driven investors to higher-yielding but riskier assets.

Some of these assets include Asian local currency bonds.

But experts said these have been safer to invest in over the past decade, as the Asian bond market becomes more liquid.

Worth over US$6 trillion, the Asian local currency bond market has doubled in size over the past five years.

Part of the growth is driven by investor demand for higher yields, and part of it is driven by the increasing number of Asian corporates who choose to raise funds through bond issuances.

Deutsche Bank said that India, China and Singapore are the three top markets to invest in.

Vishal Goenka, head of Local Currency Credit Trading (Asia) at Deutsche Bank, said: "The Sing dollar corporate bond market is a hometown favourite. I really like it because we have a very proactive regulator here, who is promoting liquidity in the secondary bond market.

"From an international investment point, it offers a lot of stability because of the massive private banking involvement in the investor base of this market."

Private bank clients make up about half of the investor base for the Sing dollar corporate bond market.

According to Deutsche Bank, it is a market that is worth about US$95 billion.

In comparison, the size of the Indian corporate bond market is US$200 billion.

China's corporate bond market is worth US$1 trillion, up 45 per cent from a year ago.

Wong Sui Jau, general manager of Fundsupermart.com, said: "Our latest tracking for Asian bonds' yield to maturity is 4.3 per cent. But US yields are under 1 per cent, Europe yields are not much better - slightly above 1 per cent - and Japan is also close to zero."

Bond yields are tied to interest rates, and these have been much higher in developing Asia.

Experts said this search for yield is a matter of concern and warn that investors need to take into account risks involved.

Mr Lim said "more and more investors are being crowded into searching for yields and taking risk", and this "leaves little on the table to cushion adverse outcomes".

- CNA/ms