Temasek is grim on returns outlook after slowest gain in three years

Singapore — Temasek Holdings posted the lowest rise in its portfolio in three years as the value of key bank stock holdings declined and the Singapore state investor said it is increasingly focusing new investments in North America, Europe and on unlisted firms.

Like larger sovereign wealth fund GIC, Temasek cited the US-China trade war and low interest rates as factors that will trim return expectations for the longer term, underscoring pressure investors face globally.

“Trade and technology tensions are already disrupting supply chains, business confidence is being tested and capital investments have slowed,” Png Chin Yee, a senior managing director at Temasek, said on Tuesday.

“If growth remains weak, the low interest rate environment is likely to persist. This could lower returns expectations into the foreseeable future,” she said.

Temasek’s 1.6% portfolio gain for the year to March 31 2019 came after a 12% increase a year ago and took its net portfolio value to a record 313-billion Singapore dollars ($230bn). MSCI’s Asia shares ex-Japan index and Singapore’s main index fell about 6% over the same period.

In US dollar terms, its portfolio value fell to $231bn from $235bn, Temasek said. Total shareholder return fell to 1.5% in the past year in local currency terms, down from 12% a year ago.

Washington and Beijing have slapped tariffs on billions of dollars of each other’s imports, stoking fear of the trade war escalating. Those tariffs remain in place as negotiations resume.

“We expect slower growth everywhere. The US will grow below trend and Europe is already struggling due to lacklustre exports,” said Jeff Ng, chief economist for Asia at Continuum Economics.

“One key factor that is underpinning weaker fundamentals is the uncertainty on policies,” Ng said.

Headed by Ho Ching, wife of Singapore’s prime minister, Temasek’s key holdings include DBS Group, China Construction Bank, Alibaba Group and Standard Chartered.

Tech investments

Temasek remains anchored in Asia, with a 66% exposure to the region by underlying assets. But the US again accounted for the largest share of its new investments in the latest year, followed by Europe and China. Europe and North America now make up a quarter of its total portfolio.

Ranked among the biggest in the world, Temasek has also been expanding its technology nvestments.

In the past year, it invested in companies such as tech services firm UST Global, Indian ride-hailing company Ola and French aerospace firm Safran. Unlisted assets made up 42% of Temasek’s portfolio, up from 39%.

Temasek is increasing its early stage funding in companies that are taking advantage of artificial intelligence, resulting in these investments, including indirect ones through venture capital funding, making up 3% of its portfolio.

Temasek’s divestments of 28-billion Singapore dollars outpaced its investments of 24-billion Singapore dollars in the past year.

Asked about a sharp drop in shares of its portfolio company Bayer and whether Temasek still has confidence in the German pesticides firm and drugmaker, its executives said they are committed to the company.

John Vaske, head of Temasek’s agribusiness investments team, said Bayer’s operating metrics mostly held in line with Temasek’s expectations.

“The long-term thesis that we underwrote initially, remains true today and our confidence level is high,” he said.

Bayer’s share price plunged after its $63bn acquisition of Monsanto, which brought with it enormous legal issues.

Reuters