SINGAPORE: Temasek Holdings on Tuesday (Jul 10) reported a record net portfolio value for the last financial year – its second in a row – but the Singapore investment company said it plans to slow its investment pace amid the probability of increasing downside risks in the near term.
Its net portfolio value rose to S$308 billion for the financial year ended Mar 31, up 12 per cent from S$275 billion a year ago, Temasek said in its annual review.
“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 Temasek International’s CEO and executive director Lee Theng Kiat in a statement.
Good global economic momentum and buoyant equity markets were the main drivers for its portfolio value. In particular, Asia-Pacific was a key outperformer , with Chinese banks among the biggest contributors, said Temasek’s joint head of portfolio strategy and risk Rohit Sipahimalani.
Its latest set of numbers also showed one-year total shareholder return at just over 12 per cent, compared with 13 per cent a year ago.
Temasek invested S$29 billion and divested S$16 billion from Apr 1, 2017, to Mar 31, 2018 – a reversal from the earlier 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.
It also noted that it ended the year in a net cash position. “Our cash and bank balances, together with our short-term investments, were a robust four times the S$8.5 billion debt we have due over the next decade,” the annual review said.
The United States accounted for the largest share of investments during the financial year, followed by China and Europe. Mature economies form 60 per cent of Temasek’s portfolio while growth economies, such as Latin America and Africa, make up the remaining 40 per cent.
Overall, Singapore remained the bulk of Temasek's portfolio at 27 per cent though an evolving portfolio has seen Europe and the Americas growing in size to form almost a quarter of the firm’s underlying portfolio exposure.
Its two biggest sectors continued to be financial services (26 per cent) and telecommunications, media and technology (21 per cent).
Temasek said it has been increasing its focus in sectors such as technology, life sciences, agribusiness, non-bank financial services and consumer, over the past seven years. From S$9 billion or 5 per cent of a smaller portfolio in 2011, its exposure to these sectors now make up S$80 billion or 26 per cent of the firm’s total portfolio.
During the last financial year, nearly half of the new investments, totalling about S$13 billion, went into these focus sectors.
Given how returns from these sectors have outperformed the total portfolio return, the change in focus has had a positive impact on the firm’s returns, said managing director of investment Alphin Mehta.
Beyond this, the state investor is also eyeing new global trends for its future investments. Among the six identified, longer lifespans have created investment opportunities in biopharmaceutical companies while the rise of the sharing economy has fuelled the birth of sharing platforms like Go-Jek and Airbnb.
TO SLOW INVESTMENT PACE AMID INCREASING DOWNSIDE RISKS
For the year ahead, Temasek is generally positive in its outlook but expects global growth to moderate.
There is a probability of increased downside risks in the near term, said managing director of investment Tay Sulian.
As such, Temasek 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, though he stressed that there remains a “robust pipeline of opportunities” this year.
The risks ahead include escalating trade tensions between the US and China, but head of strategy 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.
However, "a period of significant trade tensions" will likely continue and Temasek will be watching to see if the conflict intensifies to involve other countries.
“The tariffs that have been in place so far have been relatively small and do not have a huge impact on growth but obviously, we are worried that this could escalate,” he told reporters.
“One thing we are watching is whether these tensions go beyond the US, China and move to other countries … That’s when you will have an increase in (the) risk of broader trade tensions.”
Another medium-term risk is monetary and financial stresses in some key economies, with a rising risk of a recession in the US being something that Temasek said it will be watching 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 Singapore’s latest property cooling measures, Mr Buchanan said they are “unlikely to have a broad macro impact” to the local economy though some hits to the sector will be unavoidable.
When asked if it is concerned about possible spillover effects to the local banking sector, specifically on its key investment DBS, Temasek’s head of financial services Png Chin Yee told Channel NewsAsia that a significant long-term impact on the local lender is unlikely.
“DBS has built multiple engines of growth (over) the last few years, both in Singapore as well as in the region. The mortgage market is only one of the many markets they are in,” she said.