SINGAPORE: Temasek Holdings on Tuesday (Jul 9) reported a record net portfolio value for the last financial year – its third in a row – despite pulling back its pace of investment to navigate a tough environment.
The Singapore state investment firm said that it will stay cautious looking ahead, and warned of lower returns expectations amid headwinds like a protracted trade spat between the United States and China.
For the year ended Mar 31, Temasek’s net portfolio value rose to S$313 billion from S$308 billion a year ago, according to its latest annual review.
Its one-year total shareholder return, however, fell to 1.49 per cent, compared to the 12.19 per cent a year ago, on the back of market volatility. Dividend income held steady at S$9 billion.
For the year under review, Temasek invested S$24 billion and divested S$28 billion. This marked a reversal from the earlier financial year when investments exceeded divestments as Temasek stepped up its divestment pace in light of macroeconomic headwinds, it said in a press release.
These divestments include US biopharmaceutical firm Gilead Sciences, Cargill Tropical Palm and Brazilian paper producer Klabin. It also reduced its stakes in the likes of Chinese Internet behemoth Alibaba and global tech firm CenturyLink, though it said it continues to maintain significant holdings.
The United States accounted for the largest share of new investments during the last financial year, followed by Europe and China. Mature economies formed 60 per cent of Temasek’s portfolio while growth economies, such as Latin America and Africa, made up the remaining 40 per cent.
Overall, Asia remained the anchor of Temasek’s portfolio at 66 per cent, with Singapore and China accounting for 26 per cent each. It has also been growing its exposure in Europe (10 per cent) and North America (15 per cent) in line with emerging trends and opportunities.
Financial services (25 per cent) remained the biggest sector in its portfolio, with new investments continuing to focus on non-bank financial technology and payments platforms such as China’s Ant Financial.
Technology, media and telecommunications (20 per cent) also remained a key investment focus. North American digital solutions provider UST Global and online food delivery marketplace DoorDash, as well as India’s ride-hailing firm OlaCabs, are among its new investments.
“In general, we manage our portfolio and liquidity for resilience, especially in anticipation of a more challenging outlook. We were concerned about the downside risks last year and have deliberately tempered our investment pace,” said its president and chief operating officer Chia Song Hwee.
“We continue to be disciplined in our investment approach and remain watchful of the macro headwinds,” he added.
RISKS AND INVESTMENT STRATEGY
Escalating tensions between the US and China remain on Temasek’s watch-list amid weaker global growth.
“Trade and technology tensions are already disrupting supply chains; business confidence is being tested and capital investments have slowed,” said Ms Png Chin Yee, senior managing director of Temasek’s portfolio strategy and risk group.
“Restrictions on the tech front could lead to bifurcation on systems globally. This could have meaningful impact on medium-term growth and productivity.”
It is also mindful of the risks of a late-cycle recession in the US, while the risks of a disorderly Brexit and political fragmentation continue to weigh on Europe.
On the other hand, while the outlook for China may come under more pressure from the prolonged standoff with the US, Temasek said it remains optimistic about China’s overall trajectory in the medium term on the back of timely and targeted reforms.
Similarly in Singapore, the potential of increased trade and investment into the growing ASEAN region could favour the country in the long run, even as the economy is moderating alongside the slowdown in global growth with increasing downside risks from global tensions.
Some segments of the local economy, including professional, financial and technology services, are also expected to remain resilient, said Temasek.
“While the increasingly challenging global environment may dampen business confidence and investment, we expect policymakers to be primed for dovish policies that could cushion any substantive pressure on growth,” said Ms Png.
“If growth continues to be weak, the low interest rate environment is likely to persist into the foreseeable future. This could lower returns expectations for the longer term,” she added.
Despite that, Temasek said it continues to seek opportunities that are more resilient against ongoing headwinds.
The US and China, for example, remain interesting markets where a lot of its investments are geared towards domestic consumption.
These include the financial sector and e-commerce, which remain “relatively insulated” from the trade tensions, said Ms Png.
Temasek also has been investing in structural trends driven by tech, namely longer lifespans, rising affluence, sustainable living, sharing economies, smarter systems and a more connected world.
“Over time, we will see that our returns will reflect the reshaping of portfolio according to the focus sectors, six trends and the geographies we are allocating capital towards,” said Mr Dilhan Pillay, CEO of Temasek International.
Meanwhile, Temasek said it does not have direct exposure to Hong Kong, which has been rocked by massive protests and political instability.
While it has invested in a number of stocks listed on the city’s stock exchange, they represent exposure mainly from China, said Ms Png. “From that perspective, it’s not a significant impact for our portfolio.”