Good evening.

On behalf of GIC, I deeply appreciate the presence of our partners tonight to mark the fifth year of our local office in Brazil. We could not have reached this milestone without your support and friendship. Thank you very much.

We organised this event to bring together our valued partners in Brazil from across asset classes and sectors, to connect and to share perspectives. I’d like to thank our distinguished guest speakers Luis Stuhlberger, Candido Bracher, Heráclito Gomes, André Street and Cristiano Teixeira. They are all leaders in their fields and we appreciate their valuable insights. In this complex and uncertain time, the exchange of ideas is all the more important.

This evening I’d like to share briefly GIC’s views on three topics – the global outlook, emerging markets, and of course, our presence in Brazil.

Global Outlook
Broadly speaking, we have been concerned about the high uncertainty in the global investment environment, compounded by elevated market valuations and low volatility, especially in developed markets. The potential reward for risk taking is not particularly favourable.

At this juncture, our key concerns are:
– Inflation rising faster than expected, which would significantly change the financial market environment. For the last 10 years, the lack of inflation pressures has allowed many central banks to run a highly accommodative policy regime. Such a change would have large implications for asset valuations.
– China slowing down more than expected. Given China’s linkages to many economies, this too has significant global ramifications.
– A flare-up in geo-political conflicts. This is now a regular investor concern.
– Rising market vulnerabilities due to long period of low market volatility and untested liquidity of new investment structures.
In the longer term, we see structural headwinds such as demographics, high leverage and limited policy room. In particular, we are concerned about brewing instability of the middle class in developed countries stemming from uneven participation in globalization and technology. If these persist, the result will be weaker growth. Coupled with high starting asset prices, investors face the prospects of lower future investment returns.

So how does GIC invest in such an environment? We adopt a cautious stance on betas, or broad market exposures. We simply cannot expect broad market exposures to give us the same levels of historical returns. We need to supplement with alphas, or idiosyncratic exposures, but to do so cautiously and only in areas where we can commit to building capabilities. The setting up of our office in São Paulo is an example of that. We knew such efforts would require long-term commitment to building local capabilities and widening reach in terms of partnerships. For the last five years of challenging environment in Brazil, GIC not only stayed on, we took the opportunity to expand our capabilities and partnerships.

Emerging Markets
We see emerging markets benefitting from structural improvements and contributing positively to our long-term real returns. We also believe that emerging markets offer many attractive opportunities for active management.

GIC has a significant exposure to emerging markets at over 20% of the total portfolio. This is higher than most global investors. This is a position that we have steadily built from our early years and have benefited from being a long-term investor. A key example is China, where we celebrated the 20th anniversary of our Beijing office last year.

China is a very important economy and market. What happens there is felt everywhere around the world. It may be useful for me to offer a few comments. China has in recent years experienced slower growth, but its long-term fundamentals remain sound and it still enjoys good policy levers. There are, however, significant internal and external challenges. Internal challenges include the credit excesses accumulated since the Global Financial Crisis, which need to be reduced. Progress has been made but more needs to be done. Externally, trade and other pressures will likely persist. Structural reforms would be key to overcoming these challenges. There is an opportunity for China to use the external pressures to deepen its reforms. Doing so successfully will likely bring many more years of good growth.

GIC’s Presence in Brazil
We believe Brazil is on its way to recovery. There are, however, still important tasks to be completed such as social security reforms, privatization and tax simplification. If done well, Brazil can usher in a period of low inflation rates and low nominal and real interest rates, which will help to engineer growth and outperformance of Brazilian businesses.

The long history of high real interest rates in Brazil has instilled in many Brazilian entrepreneurs the discipline in the use of capital. In some economies where there are abundant savings, there is little cost in borrowings so entrepreneurs in these economies sometimes misuse the resources. But in Brazil, without that luxury, capital is more likely to be put to better use. If interest rates can indeed be brought down, there will be much upside for enterprise growth.

Brazil is a very large economy. It has the ninth largest GDP in the world. It is an important market for global investors like GIC. There are sectors we are positive on, especially those related to consumers such as healthcare and education. We also actively look at other sectors like real estate, infrastructure and technology. Today we already have exposures in all these areas. As the economy grows, we look to build on them.

GIC has been investing in Brazil for 20 years. We set up a physical presence five years ago in 2014 and we believe that having boots on-the-ground has made a big difference. Today, we have about 30 people covering Brazil, which demonstrates significant effort and commitment.

Besides providing stable and flexible forms of capital to businesses, our approach has been to stay invested, avoid being pro-cyclical, and value long-term relationships. We also add value in other ways, including bringing our partners together at events like this, to share insights, ideas and connections.

We have forged many good, deep and long-term relationships, and wish to find more ways of working closely with our partners. I would also like to thank our teams for a job well done.

Lastly, I would like to share the mission of GIC, which is to secure the financial future of Singapore. The reserves that we manage are a rainy day fund, a stability fund and an endowment fund for Singapore. We are focused on generating good long-term returns. In the process, we hope we also contribute to the economy of and communities in Brazil.

Thank you.