GIC Insights 2024, held on 13 November in New York City, hosted our first Boardroom of Ideas – a ‘dinner conversation’ in front of a 300-strong audience, where eight leaders debated the world’s biggest issues, from rising debt levels to shifting supply chains to AI.
The discussion featured:
- Jaime Augusto Zobel de Ayala, Chairman, Ayala Corporation
- Stephen A. Schwarzman, Chairman, CEO and Co-Founder, Blackstone
- Ray Dalio, Founder, Chief Investment Officer Mentor and Member of the Bridgewater Board, Bridgewater Associates
- Hock E. Tan, President and CEO, Broadcom
- Dave Ricks, Chair and CEO, Eli Lilly and Company
- Susan Li, Chief Financial Officer, Meta
- Joey Wat, CEO, Yum China
- Lim Chow Kiat, CEO, GIC
We have prepared a snapshot of the key takeaways from the discussion below.
Note: In accordance with the Chatham House Rule, none of the insights reflect the views of or should be attributed to any single organisation or individual.
The impact of the US elections
With the incoming US administration, investors and businesses must brace for policy changes across trade, immigration, technology, and social issues, many with potential global implications.
Deregulation is expected to be the hallmark of the new administration, with rollbacks anticipated across a range of issues, including climate policy and anti-trust measures. The proposed Department of Government Efficiency aims to achieve significant cost savings by deregulating the US economy, with the goal of enhancing international trade and investment flows, and boosting innovation and competitiveness across various sectors.
Domestic divides, fuelled by deepening inequalities, may persist and widen, while geopolitical tensions, particularly with China, are likely to continue. The race over artificial intelligence (AI) innovation could further exacerbate technology bifurcation, particularly between countries already adopting and developing advanced AI technologies and those who are just starting their AI ambitions.
The recent export controls on US-made semiconductors appear to further accelerate this divide.
Debt dilemma
Many of the new US administration’s proposed pro-growth policies, from tariffs to tax cuts, will contribute to increasing already high fiscal deficits. The growing supply-demand imbalance in the US Treasury market 1 with dealers holding record amounts of unsold US government debt, will place upward pressure on interest rates and inflation over the long term, increasing borrowing costs and straining the economy. The Fed may need to step in to keep interest rates low and enable the servicing of mounting debts.
Rising debt levels, not just in the US but across most major economies, will raise questions about the effectiveness of debt instruments as a way to store wealth.
The issue of high US dollar-denominated debt rates is also compounded by the lack of an alternative reserve currency to the US dollar, given the size of the US economy and the depth of its capital markets.
China’s economic crossroads
To manage its surging debt and avoid economic malaise akin to Japan’s ‘lost decade’, China should simultaneously restructure bad debts and create money and credit. This involves lowering interest rates below inflation and nominal growth rates while weakening the currency to devalue the debt, reducing debt burdens without causing unacceptable deflation or inflation. Such a strategy is only feasible because most of China’s debt is denominated in its local currency and most of its creditors are its own citizens. However, it is politically challenging as the majority of spending occurs at the local government level.
China is also witnessing a rationalisation of consumption behaviour. Economic pressure is prompting consumers to spend more cautiously, shifting from premium brands to lower-cost, value-driven choices. Companies must adapt to consumer pride in being ‘cheap and cheerful’, as exemplified by recent trends in the fast-food industry.
Shifting supply chains
Efforts to diversify supply chains and onshore production to address shortages exacerbated by COVID-19 have left many suppliers with excess inventory. Demand has since slowed to pre-pandemic levels in a more difficult economic environment. The semiconductor industry, which provides components integral to a slew of products, has swung from chip shortages to excess capacity. The industry already has a history of fluctuating between shortages and surpluses. The key question is how quickly it can rebound, especially as rampant spending by hyperscalers on high-performance AI chips are offset by more caution from other buyers.
Geopolitics could further complicate the inventory glut and create a "capex divide". Capital repatriation to the US and Europe is a long-term megatrend that is leading to record spend in healthcare, chips, defence, and other critical supply chains. This will create opportunities for those deriving revenue from these investments, such as equipment manufacturers for medical factories, but will pose challenges for those who bear the costs, such as consumers paying for the medicine.
The AI opportunity
The transformational impact of AI across industries is explosive, akin to the invention of the lightbulb. It is already improving efficiency in areas such as production planning, sales forecasting, and supply chain management. AI is likewise helping companies recruit better and faster: generative AI can enable employers to analyse resumes, shortlist candidates, and facilitate interviews within a single day, improving the success rate of recruitment.
Hyperscalers investing heavily in AI see opportunities in two key areas: building world-class, open-source foundational models to empower the developer community to then create world-class AI platforms, and leveraging AI tools to enhance their core products and services, such as social media and advertising.
In the life sciences sector, AI is already being deployed to help develop drugs to combat critical illnesses within a fraction of the typical time. At a time when healthcare costs are growing multiple times faster than GDP 2 and contribute significantly to mounting debt, healthcare technology remains one of the most underinvested domains. Although it may require higher short-term investment, AI in healthcare promises improved efficiency and substantial cost savings over the long term.
In the fintech sector, AI is making it much easier and more cost-effective for individuals, especially those who are unbanked or financially underserved, to access financial services tailored to their specific needs. Many people in emerging markets are now able to access formal finance for the first time.
Taking the good with the bad
While the opportunities are numerous, so too are the challenges.
Elevated spending on AI infrastructure must be matched by robust revenue streams to fill the AI capex hole. Focusing on evolutionary technology, rather than solely on disruptive innovation, will be crucial for developing sustainable businesses. Prioritising operational efficiency alongside innovation is key.
In addition to the widely discussed risks AI poses, such as making criminals smarter, displacing the human workforce, or compromising national security, it could exacerbate social tensions and directly impact people’s welfare through extreme use cases such as automated insurance claim denials. Furthermore, AI could undermine critical thinking and informed decision-making, creating a disconnect between technology-based education and the actual needs of industries and economies.
Predictions for tomorrow
The discussion wrapped up with a series of predictions for the future.
Healthcare is entering a definitive era of invention, even without considering AI. For example, with only a small fraction of the population currently being treated for obesity, scaling the production of weight-loss drugs will be crucial to combat a condition that contributes to nearly half of adult diseases and healthcare costs in the US.3 4
The next frontier is treating neurodegeneration and brain diseases such as Alzheimer’s, which is especially critical in an ageing society. New biologic understanding will help treat people at the right time with the right therapies. Nucleic acid therapeutics, notably used for the development of mRNA vaccines, could be repurposed into targeted medicines for the brain. Additionally, psychiatry, a field that has seen limited innovation over the last three decades, will require urgent advancements to address the ongoing mental health crisis.
In the tech space, we will witness the evolution of prediction markets, while finance might see the major disintermediation of traditional financial institutions through the rise of private credit. The opportunity for private credit is expanding rapidly beyond ‘direct lending’, or financing M&A transactions, to lending in parts of the real economy like infrastructure and asset-based credit.