Temasek turns cautious on outlook, sees more market declines

Singapore’s state-owned investor Temasek Holdings Pte said it’s adopting a cautious outlook and sees more market declines after posting a 5.8% return for its latest fiscal year as gains in domestic stocks offset widespread declines in China.

The US$287 billion firm said it will slow its pace of investments and take a cautious stance given the likelihood of a recession in developed markets. Temasek said the risk of a mild recession in the US into 2023 has risen due to tighter financial conditions and geopolitical uncertainty. China meanwhile faces “challenges” meeting its 2022 growth target of 5.5%.

“The global economy is in a fragile state,” Temasek said in a statement Tuesday. “Rising inflation, surging commodity prices and severe supply chain bottlenecks have uncovered further fault lines in the global marketplace.”

Temasek expects to see continued asset declines this year and possibly into 2023, with the bear market only turning around when the US Federal Reserve indicates it will stop tightening, said Chief Investment Officer Rohit Sipahimalani.

“Given the Fed’s current stance, we don’t see that happening quickly,” Sipahimalani told reporters.

Temasek’s portfolio rose to S$403 billion (US$287 billion) for the year ended March 31, up from S$381 billion a year earlier, according to the statement. The gain is down from 25% the previous year, and brings its 10-year annualized return to 7%. While global markets from New York to Sydney have suffered in 2022, much of the damage took place after Temasek’s fiscal year ended.

The company has increasingly relied on unlisted businesses to bolster returns as public markets decline. These private firms now account for 52% of assets, up from 45% the previous year. The value of these holdings, which include port services company PSA International Pte, Pavilion Energy Pte, and Singapore Power Ltd., has soared four-fold over the last decade to S$210 billion, posting annualized returns of more than 10%.

Publicly listed companies in Singapore also bolstered Temasek’s returns for the year. Singapore Telecommunications Ltd. gained 11% for the period including dividends, while DBS Group Holdings Ltd., the country’s biggest bank, returned 29%.

Temasek has been playing a more active role in its domestic portfolio, providing financial backing for key fundraisings, mergers and acquisitions. Those include agreeing to use a wholly-owned subsidiary to facilitate the sale of Keppel Offshore & Marine Ltd. rigs, and providing crucial support to Singapore Airlines Ltd. and Sembcorp Marine Ltd. as they raised funds.

Temasek’s continued growth comes at a critical time for Singapore, which is attempting to shake off the economic effects of the pandemic and is heavily reliant on money from state-owned investors to fund the national budget. Those contributions are among the biggest sources of revenue for the tiny city state.

The domestic investments offset declines in China, where the main stock gauge slumped 16% for the period. Temasek’s stock holdings have included Industrial & Commercial Bank of China Ltd. and Alibaba Group Holding Ltd., which plunged about 50% for the year.

China became Temasek’s biggest source of investments during the 2020 fiscal year, with big bets on the country’s technology giants from Alibaba to ride-hailing service Didi Global Inc. -– many of which have since soured thanks to regulatory crackdowns and economic damage from the pandemic. China now ranks second behind Singapore, accounting for 22% of Temasek’s portfolio, from 27% the previous year.

China remains an “important” market, and Temasek was a net investor in the country over the year, said Sipahimalani. He added the reduced China exposure was entirely due to the drop in markets.

Temasek sold out of several Chinese technology companies during the year including search giant Baidu Inc. and New Oriental Education and Technology Group Inc. But the firm has remained publicly bullish on investments in the country, predicting as recently as May that China’s growth would revive in the second half of this year. The firm is seeking opportunities in artificial intelligence and deep tech in China. –BLOOMBERG