Why massive forex losses at GIC will further delay CPF payout

In order for CPF members to withdraw our retirement savings, GIC would first have to divest some assets and convert the amount to local currency.

Unfortunately for CPF members, the Singapore dollar has appreciated against most currencies over the past 1 to 2 decades.

And 100% of CPF is invested in overseas assets.

Forex losses are not peanuts, eg British pound depreciated by about 40% since 2004. (Currency chart)

The huge impact of negative exchange rate is evident, for eg,  GIC took a 3% stake in British Land in January 2008 when GBP1 = SGD2.8 vs SGD1.8 in 2019, ie exchange rate loss of about 35%.  (A $100 million investment is reduced to only $65 million after 10 years.)

According to a 2016 BT article, GIC had about US$24 billion invested in the UK. (GIC’s UK property exposure faces test after Brexit shock) The British pound had hit a record low and every investment in the UK was hit by forex losses of up to more than 40%.

Even if forex loss averaged only 20%, the value of all GIC’s UK investments would have been reduced by US$4.8 billion in 2016.

Negative forex movements also impact GIC’s dividends, ie reduced projected income stream.

In some other cases, GIC has been hit by mega forex losses, eg Indian or Indonesian investments.

Over a longer time frame of 25 years, the Indian rupee and Indonesian rupiah have fallen against S$ by 62% and 87% respectively.

Under such a scenario, it is unlikely that GIC would be able to divest earlier investments to return CPF to their rightful owners.  This explains why PAP has tweaked CPF rules to retain additional billions in CPF.

With the Singapore dollar appreciating against most currencies – in many cases resulting in unexpectedly huge forex losses for GIC, divesting foreign assets to return CPF monies would result in GIC taking a big hit, a slap in PAP’s face.

Forex losses on CPF investments alone amount to 10s of billion$, ie 10% forex loss on almost $400 billion in CPF = $40 billion.

Strangely, no one – including  the $1.54 million second-key jaga of our reserves and Parliament – seems interested to know the impact of forex losses on investments.

Suffer CPF members?

 

Phillip Ang

* The author blogs at LikeDatOsoCanMeh.

 

 

 

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15 Responses to “Why massive forex losses at GIC will further delay CPF payout”

  • TL Tan:

    This article is full of untruths. Not all CPF assets are invested overseas, at least a significant portion is invested in Singapore Government Bonds. The appreciation of the Sing Dollar over the past 1-2 decades has not been excessive, as MAS manages our currency to achieve stability. Brexit is a one-off event that depreciated the Sterling. Few other currencies have such significant falls. Even if there are other emerging economies we invested in that have huge FX falls, these form only a very small % of GIC’s very diversified portfolio.

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  • Rich Dumbo Poor Sinkies:

    The next huge losses will be the investment into HNA of China recently.
    https://www.bloomberg.com/opinion/articles/2018-06-11/singapore-inc-buys-an-overpriced-ticket-to-hainan
    HNA group is in trouble, accused of being a money laundering vehicle of Chinese Kleptocracy.
    A classic textbook case study, throwing money aimlessly, hoping something will sprout. No board seat in HNA, no influence on strategy, buying over huge debts.

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  • Crude as it gets:

    A little boy goes to his dad and asks, “What is Politics?” The dad says, “Well son, let me try to explain it this way: I’m the breadwinner of the family, so let’s call me capitalism. Your mother, she’s the administrator of the money, so we’ll call her the government. We’re here to take care of your needs, so we’ll call you the people. The nanny, we’ll consider her the working class. And your baby brother, we’ll call him the future. Now, think about that and see if that makes sense.”
    The little boy goes off to bed thinking about what dad had said. Later that night, he hears his baby brother crying, so he gets up to check on him. He finds that the baby has soiled his diaper. So the little boy goes to his parents’ room but finds his mother sound asleep. Not wanting to wake her, he goes to the nanny’s room. Finding the door locked, he peeks in the keyhole and sees his father in bed with the nanny. He gives up and goes back to bed.
    The next morning, the little boy says to his father, “Dad, I think I understand the concept of politics now.” The father says, “Good son, tell me in your own words what you think politics is all about.” The little boy replies, “Well, while capitalism is screwing the working class, the government is sound asleep; the people are being ignored and the future is in deep shit.”

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  • oxygen:

    @ Philip Ang,

    VERY INTERESTING PERSPECTIVE, I have never thought of this perspective prior.

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  • Sw:

    Kim sweet say already say our CPF …”long long time
    To come already!”(excerpt from “every time he look at his CPF statement he fill so rich”comment.)

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  • No Dafts or Dogs Allowed:

    Not forgetting the recently issued Temasek retail-bonds and the newly announced HDB bonds, all likely used for shoring CPF. If Hyflux bonds owned by 34,000 retail investors (initially sanctioned by this Govt.) can ‘belly-up’, don’t see why other “Lames Bonds” won’t.

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  • rukidding:

    Anything “touch or controlled” by Holy Jinx…is a “gonna” !

    It happen with “Micropolis”….it will happen again !!

    Period !

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  • clown pap is lying about CPF:

    it is unlikely that GIC would be able to divest earlier investments to return CPF to their rightful owners. This explains why PAP has tweaked CPF rules to retain additional billions in CPF.

    </strong?

    unable to divest is one reason.

    the other reasons are, S$billions are used to feed loyal useless non performing clown pap clan members such as lim boon heng, and the S$billions placed on wrong bets due to no talent.

    any clear thinking honest citizen shall know pap clown and wife both have zero talent. other than coming from the right hole and having a hole, they are no different from the ah pek ah soh in hawker centre. they are written as superior in states times and spoken as superior mediacorpse only because of the S$billions they can dispense to folks who tell the fake news about their superiority. And this is the ultimate truth.

    remove them from pap PA S$billions and gic temasick S$billions all the current toadies refocus their attention to Dr Tan CB Dr Chee SJ Mr Lim Tean Ms Sylvia Lim Mr K Jeyretnam and such New Government officials.

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  • TuaLumPah:

    This concept of divesting assets to raise cash does not factor in the possibility of printing currency to fund spending, something which has been rampantly abused by western nations. I believe MAS will exercise that option to raise funds for CPF if necessary. The author of the article did not consider that possibility.

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  • oxygen:

    @ TL Tan

    OI OI OI, PLEASE READ THIS WEBLINK below to find out WHERE exactly is “full of untruths”. Botak says GIC never invested in share but I found this little uncomfortable truth. Read the details here.

    https://www.facebook.com/PeopleForTrueRuleOfLaw/posts/oxygenaugust-11-2014-at-931-am-quotegic-is-a-substantial-shareholder-of-australi/819011848132218/

    Oh BTW, the bondholders of Paladin Energy consficated over 90% of the equity in this entity which GIC was substantial shareholder in 2014. That investment is worth LITERALLY PEANUT RELATIVE TO COSTS SPENT on this “wonder investment”.

    TL Tan: This article is full of untruths. Not all CPF assets are invested overseas, at least a significant portion is invested in Singapore Government Bonds. The appreciation of the Sing Dollar over the past 1-2 decades has not been excessive, as MAS manages our currency to achieve stability. Brexit is a one-off event that depreciated the Sterling. Few other currencies have such significant falls. Even if there are other emerging economies we invested in that have huge FX falls, these form only a very small % of GIC’s very diversified portfolio.

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  • The Other Hard Truths:

    Crude as it gets:
    A little boy goes to his dad and asks, “What is Politics?” The dad says, “Well son, let me try to explain it this way: I’m the breadwinner of the family, so let’s call me capitalism. Your mother, she’s the administrator of the money, so we’ll call her the government. We’re here to take care of your needs, so we’ll call you the people. The nanny, we’ll consider her the working class. And your baby brother, we’ll call him the future. Now, think about that and see if that makes sense.”
    The little boy goes off to bed thinking about what dad had said. Later that night, he hears his baby brother crying, so he gets up to check on him. He finds that the baby has soiled his diaper. So the little boy goes to his parents’ room but finds his mother sound asleep. Not wanting to wake her, he goes to the nanny’s room. Finding the door locked, he peeks in the keyhole and sees his father in bed with the nanny. He gives up and goes back to bed.
    The next morning, the little boy says to his father, “Dad, I think I understand the concept of politics now.” The father says, “Good son, tell me in your own words what you think politics is all about.” The little boy replies, “Well, while capitalism is screwing the working class, the government is sound asleep; the people are being ignored and the future is in deep shit.”

    Wakaka, brilliant brilliant analogy

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  • LIONS:

    GIC will tell you they have hedged the FX TRANSLATION RISK at the onset with a FORWARD FX.
    The point is have they really done so?

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  • Tremendous:

    Yes, forex losses are not peanuts.
    But members of a certain party keep their mouths shut in Parliament.
    Year in year out, present budgets. Budgets with millions and billions in numbers, but million-billion dollar budget divided by number of beneficiaries per year = small carrots.
    Worse still, some are fake carrots only showing you the number, not the actual cash or they will plough the cash back from you through other means.
    It’s true that when opposition takes over, we won’t get such small carrots anymore and this will upset some people. But we get to the true state of affairs. The sooner we realise and accept this, the better.

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  • I get up if hear somethinLong:

    But the Singaporeans INSIST there be no transparency and accountability.

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  • HarderTruths:

    Don;t worry lah.

    GIC lose or no lose – you will not see a single cent.

    Why worry then?

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