State-fund GIC: Separating rhetoric from reality makes post-Trump strategy tricky

The logo of the Government of Singapore Investment Corp. (GIC)
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Donald Trump's surprise U.S. election win has left a "high degree of uncertainty" as markets parse potential policy scenarios, said Leif Lybecker Eskesen, senior vice president for economics and investment strategy at Singapore state investment fund GIC.

"Right now, there is this gap between rhetoric and reality," Eskesen said on Wednesday at the Emerging Asia Economic Forum held by INSEAD and the Institute of International Finance in Singapore. GIC manages upwards of $100 billion.

During his campaign, Trump used aggressive rhetoric on trade, immigration, taxes, regulation, infrastructure and a host of other issues. Now, it's not clear which policies he will actually pursue.

"We have to see how some of the nominations to the cabinet come out, what the agenda will be lined for the first 100 days and how to think about implementing it, so there's a high degree of uncertainty around that," Eskesen said. "The key thing now is to work with scenarios, permutations of the different kinds of policy outcomes."

GIC, which manages Singapore's foreign reserves, tends to be tight-lipped about its investments and strategies.The fund, which the Sovereign Wealth Fund Institute ranked as the 13th largest public fund globally and the eighth largest sovereign wealth fund, holds assets across 40 countries. It typically allocates around 9-13 percent of its portfolio toward property assets and was an active buyer after real estate prices crashed in the wake of the global financial crisis in 2008 and after the Asian Financial Crisis in the late 1990s. For the financial year ended March 31, the fund's annualized rate of return over 20 years was 4.0 percent over global inflation.

Eskesen said there were questions over how stimulative the Trump administration's fiscal policy would be and the composition of the package.

"That has significant implications for the sustainability of the lift to growth that will come from that," he said.

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A "carefully calibrated" package for fiscal stimulus put together in "the right way," combined with a boost to productivity and supplemented by some deregulation policies, would offer a more benign reflation for the U.S. economy, Eskesen said.

But he added, if the package wasn't a good one, or if it's coupled with some trade protectionism, "you could get a combined package that's more inflationary than growth generating. And that could, in a sense, create a boom-bust situation."

Others also pointed to a higher level of uncertainty than would usually be seen in a U.S. administration change, with particular concern over trade policies after Trump's aggressive rhetoric promising to invalidate free-trade deals and to impose tariffs of as much as 45 percent on China's exports to the U.S.

Edward Lee, head of Southeast Asian research at Standard Chartered, said that markets didn't appear to be pricing in the potential for trade protectionism yet.

"The key characteristic of a good politician, I think, is after he gets elected, he must be thinking of getting re-elected," Lee said at the conference. "One of [Trump's] key rhetorical platforms is trade protectionism. So I do think we have to question one of the key tenets that we're used to where a strong U.S. will naturally spill over and provide some positive for the rest of the economy, especially those that enjoy a huge trade surplus with the U.S."

Others were also concerned about the potential for trade battles.

Arup Raha, group chief economist at CIMB Group, said he doubted Trump would impose tariffs, but he added that he was "guessing."

"If you do get tariffs, obviously that's a serious issue, even if China doesn't retaliate," Raha said at the conference. "There are supply chains that have been set up over the last two decades that are going to seriously get disrupted."

Raha was also concerned about the nature of Trump's infrastructure plans.

"If he goes very much private sector, it will help the U.S., but you're going to get infrastructure spending that has a private return rather than a social return," he said.

He also didn't expect Asia's economies would benefit too much from a consumption pick up in the U.S. from fiscal stimulus such as tax cuts.

"The thing about Asia -- and this is China downwards -- most of our trade is intermediate goods," he said, noting much of China's exports are machinery and equipment, not final goods.

"You actually need business investment to pick up for us to get that boost in terms of growth in terms of exports," he said.

—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1

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