Wealth fund warns of worst slump for 30 years

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The Independent Online

The world economy will suffer its most serious recession since the oil crisis of the mid-1970s with little sign of success for policymakers' attempts to end the credit crunch, one of the globe's largest sovereign wealth funds predicted yesterday.

"We could be facing a recession which is longer, deeper and wider than any recession we have encountered in the last 30 years," said Tony Tan, deputy chairman of the Government of Singapore Investment Corporation (GIC). "The financial contagion has spread beyond US shores, increasing the likelihood of a global fin-ancial crisis and recession."

GIC has suffered huge falls in recent investments in big-name banking groups, whose shares have been smashed by worsening fin-ancial conditions. It spent $10.8bn on a 9 per cent stake in UBS in December and invested $6.88bn in Citigroup a month later, both of which have suffered heavily this year. Mr Tan said GIC would not be looking to cash out, despite fears that the stocks have further to fall as the credit crunch rumbles on. He said: "We regard our investments in UBS and Citigroup as long-term investments which will give us good returns when markets stabilise and economic conditions return to more normal levels."

The fund is believed to be considering whether to participate in a proposed Sfr15bn (£7.5bn) capital raising due to be approved by UBS shareholders this week.

The Singapore fund has, however, taken a more conservative stance to its investment strategy after the tightening conditions. Mr Tan added that the GIC, which was founded in 1981 and manages $100bn, faces the most challenging en-vronment since it was launched. "As banks continue to deleverage, cutting down on their lending activities and causing contraction in credit supply, the prospects for the US economy and even the world economy are fraught with considerable downside risks," he added.