SINGAPORE (BLOOMBERG, THE BUSINESS TIMES) - One of the world's largest sovereign wealth funds said "divisive trends" in areas such as economics, technology and geopolitics will remain for some time, meaning investors will have to be more nimble to be profitable.
Mr Lim Chow Kiat, the chief executive officer of Singapore's GIC, identified this "great dispersion" as a force that needs assessing in order to re-imagine the future as the world undergoes big changes. He also warned that large policy interventions undertaken by governments to avert economic collapse due to the coronavirus pandemic aren't by themselves a long-term solution.
"The resulting low interest rates, debt piles and heavy financial market reliance on policy support could lead to large distortions of economic decisions, macro instability and market fragility," Mr Lim said in a GIC Insights report released on Friday (Oct 9).
"We expect the economic environment to be volatile and challenging." Most emergency spending and lending have gone toward relieving short-term pressures and are a liquidity bridge, he said, adding that solvency remains an issue.
As to how investors need to adapt and adjust to the resulting wide dispersion of outcomes, Mr Lim suggested looking under market aggregates and indices more thoroughly, as important risks and opportunities may be hidden in them.
The report also said that panellists at a GIC Insights event on Friday discussed how the Covid-19 pandemic has exposed vulnerabilities in the global biopharmaceutical supply chain, and raised renewed concerns over the offshoring of facilities to Asia.
The pandemic highlighted the heavy reliance on large producer markets - such as China and India - for critical medical supplies. As a result, governments will likely seek to increase the security of such supplies through a certain degree of onshoring and diversification, said the report.
Supply chains have moved offshore over time, and span multiple countries in many cases. For example, India manufactures and supplies 40 per cent of generic drugs to the US, while China is a major supplier of pharmaceutical raw materials to India.
In the US, a heavily discussed area has been the manufacturing of critical active pharmaceutical ingredients, also known as APIs, and medical supplies. These manufacturing capabilities are often concentrated outside the US, in countries such as India and China.
However, decisions to onshore and diversify the biopharma supply chain are not straightforward.
"Low labour costs, state subsidies and easier regulations have helped make markets like China and India attractive as manufacturing hubs; reversing this trend will not be easy," the report stated.
Despite US President Donald Trump's executive order to "buy America" for essential products, it may be neither economical nor easy to replicate in the US on a large scale the infrastructure and capacity found in China and India.
Besides, the US government is not the biggest buyer of generic medicines in the country. Most of the supply in the US goes to commercial mega-buyers, the report stated.
Whether widespread reshoring can be achieved without heavy subsidies is also unclear. Companies will learn from the Covid-19 experience, streamline operations and strengthen end-to-end supply chain processes, to increase their resilience should another pandemic hit.
"But ultimately, in the corporate world, changes to supply chain strategy will still have to be driven by cost and capital efficiencies," the report added.
The panellists noted that strategic shifts in the supply chain may benefit markets with export-oriented economies and policies, like Switzerland and Singapore, rather than the US.
