Singapore. Temasek Holdings reported a record portfolio value for last year as rallying global stocks helped rake in positive returns, but the Singapore state investor also nearly halved its new investments reflecting a cautious approach to markets.
Temasek joined bigger state fund GIC and Chinese sovereign wealth fund China Investment Corp in flagging intense competition from global funds for deals, which is pushing up valuations and threatening to drag down returns.
"Looking ahead, we remain cautiously positive on global growth. But we are also cognizant of risks in valuations, liquidity and politics," Michael Buchanan, Temasek's head of strategy, said at an annual news conference on Tuesday (11/07).
Temasek's assets rose 14 percent to S$275 billion ($199 billion) in the year ended March, after falling 9 percent a year ago. Its long-held investments in financials, such as China Construction Bank, DBS Group and Standard Chartered, paid off last year as equity markets surged.
MSCI's Asia shares ex-Japan index jumped about 15 percent last year.
Temasek's one-year total shareholder return swung to 13.4 percent, from a negative 9 percent for the prior year.
However, given "the valuation consideration as well as perhaps more competition for transactions, we reduced our pace of investments quite a fair bit," said Chia Song Hwee, joint head of Temasek's investment group.
Temasek invested S$16 billion in the year that just ended, versus S$30 billion in each of the past two years, and divested S$18 billion – resulting in a net divestment position for the first time since the year to March 2009.
Its investments are mostly in equities and it is the top investor in a third of companies in Singapore's benchmark index. The city-state and China represent the largest share in Temasek's portfolio by underlying exposure.
Under chief executive Ho Ching, the wife of Singapore Prime Minister Lee Hsien Loong, Temasek has expanded to become a global investor. In the last few years, it has poured cash into faster-growing sectors such as technology, life sciences and healthcare.
It invested $800 million in Verily Life Sciences and expanded its investment in Singapore Telecommunications over the year to March 2017.
Among divestments, Temasek sold its S$2.3 billion stake in shipper Neptune Orient Lines. It also pared its stakes in China Construction Bank, Alibaba and Univar but retains significant exposure to these companies.
Company executives said they expect to clinch more private and negotiated deals. Currently, unlisted assets account for about 40 percent of Temasek's portfolio.
Temasek, however, struck a cautious note and said high market valuations meant it was finding it tougher to strike deals that would make enough returns to hit internal targets, echoing a similar view from GIC earlier this week.
GIC, which reported a higher portfolio return over the five years to March 31, expects returns to slow over the next decade, due to high valuations, uncertainty over monetary policy and modest economic growth. CIC also cited rising uncertainties of global politics and policies as potential risks to the outlook for this year.
"For most of the markets, the forward price-to-earnings ratio is currently pretty close to the historical five-year maximum levels, suggesting that valuations are a bit stretched relative to their recent history," said Temasek's Buchanan.