MAS posts disappointing 0.76% returns despite market rebound

Despite rebounding bond and stock markets worldwide and a weaker Singapore dollar, the Monetary Authority of Singapore (MAS) reported a lacklustre net profit of S$3.76 billion for the financial year 2023-2024.

This profit, though a significant swing from the previous year's record loss, represents an uninspiring return of less than 1 percent on the central bank’s vast portfolio.

The MAS annual report, released on 18 July, revealed that the S$3.76 billion profit was bolstered by an investment gain of S$12.7 billion and positive currency translation effects of S$1.7 billion. This culminated in an overall profit of S$14.4 billion, yet the net outcome remains unimpressive given the scale of the central bank’s operations and assets under management.

In stark contrast to the S$30.8 billion net loss in FY2022-2023, which stemmed from negative currency translation effects and high interest expenses, the latest financial results highlight the volatility and limited returns of MAS's investment strategy.

The gains and losses are tied to MAS's monetary operations aimed at managing the Singapore dollar against a basket of currencies to ensure price stability.

These operations, involving the buying and selling of currencies and managing Singapore dollar liquidity, led to a substantial accumulation of official foreign reserves (OFR), which stood at S$497.6 billion at the end of FY2023-2024. However, the accumulation of these reserves, rather than yielding significant returns, resulted in an underwhelming profit margin.

MAS's strategy of subscribing to Reserves Management Government Securities (RMGS) for longer-term management by sovereign wealth fund GIC, when OFR exceeds the optimal size, yielded S$9.7 billion in interest income.

Despite this, MAS incurred a net cost of S$9.2 billion in its money market operations, further underscoring the inefficiencies and minimal returns on its investments.

The currency translation effect was notably positive in FY2023-2024 due to the weakening Singapore dollar against major currencies, yet this had no substantial impact on the international purchasing power of the OFR or MAS’s ability to conduct monetary policy.

The report also detailed a transfer of S$22.5 billion to the Government for management by GIC, with RMGS holdings increasing from S$237.6 billion to S$260.1 billion.

This transfer, while significant, does not mask the modest returns achieved from such a substantial investment portfolio.

And if we include the S$22.5 billion transferred to GIC, the total portfolio managed by MAS would be approximately S$520.1 billion (S$497.6 billion + S$22.5 billion). This amounts to a return of just 0.73 percent.

MAS highlighted that global markets rebounded in the second half of the financial year, driven by resilient global growth and moderating inflation, leading to gains across all major asset classes. However, the actual impact on MAS’s bottom line remains minimal, raising questions about the efficacy of its investment strategies.

Despite the central bank’s optimistic outlook on global growth and economic resilience, the abysmal returns of less than 1 percent paint a bleak picture of the financial year’s achievements.

The Singapore economy is projected to grow by 1 to 3 percent in 2024, but the returns from MAS’s operations suggest a need for more effective management of its extensive reserves.

Deputy Prime Minister Gan Kim Yong emphasized the importance of patience and vigilance in addressing inflation risks, but the financial results indicate that more robust strategies may be necessary to improve returns and enhance the resilience of Singapore’s financial system.

While the banking sector and non-bank sectors such as insurers and investment funds remain stable, the overall performance of MAS’s investments suggests that a re-evaluation of its approach could yield more substantial and meaningful returns in the future.

In stark contrast, Norway’s sovereign wealth fund, the world’s largest, reported a record profit of US$213 billion in 2023, driven by strong returns on equity investments, particularly in tech stocks. The fund achieved an impressive 21.3 percent return on its equity investments, highlighting the potential for higher returns with a more aggressive investment strategy.