Returns from CPF investments in GIC follow the stock market very closely. It was reported that GIC had suffered a loss of US$41.6 billion during the last financial crisis.
GIC’s approach has been described as “aggressive” in some of its investments. GIC is also not concerned about market cycles. So long as funds are available, especially OUR CPF, it will invest come rain or shine.
What is worrying is the global economy has been built on a mountain of debt. Since the financial crisis, US debt has almost doubled from $10 trillion in 2008 to currently $17 trillion. Likewise for most countries. The only ‘solution’ has been to lower interest rates to historical lows which has in turn created asset inflation.
The whole world has been investing in equities simply because there are no alternatives to generate high returns. Stock prices do not reflect economic fundamentals.
GIC has been investing (buying) at every stage of a business cycle and totally disregarding economic fundamentals. Should any investments be ‘underwater’ it could simply categorise them as ‘very long term’ investments because there is an endless supply of money from CPF members.
Global stock markets have rallied for more than five years based on central banks providing liquidity instead of improving economic fundamentals. The wealth effect is about to come to an end. A collapse is inevitable, the question is when. Will our CPF monies in GIC be wiped out?