SINGAPORE: Temasek Holdings on Tuesday (Jul 10) reported a record net portfolio value for the last financial year – its second in a row – though the Singapore investment company flagged the probability of increasing downside risks in the near term and plans to slow its investment pace over the next nine to 18 months.
Its net portfolio value rose to S$308 billion for the financial year ended Mar 31, up $33 billion from S$275 billion a year ago, the Singapore investment firm said in its annual review.
Advertisement“Our net portfolio value passed the S$300 billion mark for the first time. It is now almost three times the dot-com peak of just over S$100 billion at the turn of the millennium,” said Mr Lee Theng Kiat, CEO and executive director of Temasek International, in a statement.
When asked by Channel NewsAsia for the reasons behind the strong performance, Mr Rohit Sipahimalani, the joint head of its portfolio strategy and risk group, said the portfolio in Asia-Pacific was a key outperformer last year. In particular, banks in the region, especially China, were among the biggest contributors.
Its latest set of numbers also showed one-year total shareholder return at just over 12 per cent.
Temasek invested S$29 billion and divested S$16 billion of its portfolio from Apr 1, 2017, to Mar 31, 2018 – a reversal from the previous financial year when divestments exceeded investments for the first time since the year ended 2009. Over the last decade, it invested S$203 billion and divested S$150 billion.
AdvertisementAdvertisementIt also noted that it ended the year in a net cash position.
The United States accounted for the largest share of Temasek's investments during the year, followed by China and Europe. Mature economies like these form 60 per cent of Temasek’s portfolio, while growth economies, such as Latin America and Africa, account for the remaining 40 per cent.
Overall, Singapore continued to account for the bulk of Temasek's portfolio at 27 per cent, followed by China at 26 per cent. However, an evolving portfolio means that the Europe and Americas have grown in size and now form almost a quarter of Temasek’s underlying portfolio exposure.
Across sectors, the financial services sector remains the largest at 26 per cent. Telecommunications, media and technology (21 per cent), consumer and real estate (16 per cent), transportation and industrials (16 per cent), life sciences and agribusiness (6 per cent) round up the top five sectors.
Temasek said it has been increasing its focus in the technology, life sciences, agribusiness, non-bank financial services and consumer sectors over the past seven years.
From 5 per cent in 2011, the exposure to these sectors now makes up about S$80 billion, or 26 per cent of Temasek’s total portfolio. During the last financial year, these sectors made up nearly half of the new investments, totalling about S$13 billion.
Given how these sectors have outperformed in terms of total portfolio return, the reshaping of the portfolio has had a positive impact on Temasek’s returns, said Mr Alphin Mehta, managing director of its investment team.
Beyond these focus sectors, Temasek is also looking at new global trends that can guide its future investments. These include longer lifespans, rising affluence and an emphasis on sustainable living, among others.
TO SLOW INVESTMENT PACE AMID RISK AHEAD
Moving ahead, Temasek said it is generally positive in its outlook for the year ahead but expects global growth to moderate.
As such, it continues to “maintain a disciplined approach” and given the market outlook, it may “recalibrate and slow (its) investment pace over the next nine to 18 months”, said Mr Mehta.
Ms Tay Sulian, managing director of its investment team, added that the firm sees the probability of increased downside risks in the near term.
These include escalating trade tensions between the US and China, but Temasek's head of strategy, Mr Michael Buchanan said the state investment firm does not expect a “full-blown trade war with punitive tariffs on a wide range of goods in a wide range of countries” to materialise.
“We do think, however, that there will be continued tensions. The tariffs that have been in place so far have been small and do not have a huge impact on growth but obviously, we are worried that this could escalate,” he said.
“One thing we are watching is whether these tensions go beyond US, China and then move to other countries … and that’s when you will have an increase in (the) risk of broader trade tensions,” he added.
The probability of monetary and financial stresses in some important economies, namely the increasing risk of a recession in the US, is also something that Temasek will be keeping an eye out for.
“With the economy running above capacity and a fiscal boost in the late stage of the economic cycle, the risk of overheating has increased. Against this backdrop, we are pacing our investments and focused on our intrinsic value-based approach,” said Ms Tay.
On how it views the recent property cooling measures, Mr Buchanan said the Singapore economy has been doing very well against the backdrop of relatively strong global growth. As such, the latest property curbs are “unlikely to have a broad macro impact” though some hits to the sector will be unavoidable.
On whether it is concerned about possible spillover effects to the local banking sector, specifically on its long-term investment DBS, Ms Png Chin Yee, head of financial services, told Channel NewsAsia that Temasek does not expect a significant impact in the long term as the mortgage market is just one of the multiple engines of growth for the local lender.
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