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TEMASEK REVIEW 2018

Temasek may slow investments as near-term risks emerge

FY2018 net profit rose to S$21b from S$14b; portfolio value hits record S$308b

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Temasek Holdings warned of increased near-term downside risks and said it could slow its investment pace, even as buoyant stock markets lifted its portfolio worth to a record high while one-year return came in at 12.19 per cent for the financial year ended March 31, 2018.

Singapore

TEMASEK Holdings warned of increased near-term downside risks and said it could slow its investment pace, even as buoyant stock markets lifted its portfolio worth to a record high while one-year return came in at 12.19 per cent for the financial year ended March 31, 2018.

The Singapore investment firm's net portfolio value grew to a record S$308 billion, up S$33 billion from S$275 billion a year ago, bolstered by good global economic momentum and buoyant equity markets, according to its annual report released on Tuesday.

A year ago, the portfolio returned 13 per cent.

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The latest results came as key listed holdings posted strong gains over the year; market capitalisation grew over 40 per cent for DBS Group Holdings, almost doubled for Ping An Insurance and 73 per cent for Alibaba Group Holding.

Annualised returns over 20 years was 7 per cent, up from 6 per cent a year ago. Dividend income was S$9 billion for the year. Net profit improved to S$21 billion from S$14 billion a year earlier, Temasek said.

During the year under review, Temasek invested S$29 billion and divested S$16 billion. That reversed the net divestment stance in FY2017, when the firm put S$16 billion of funds to work but sold S$18 billion of assets.

But the pace of new investments could slow in the year ahead. Temasek expects global growth to moderate, with a probability of increased down risks.

"Given the market outlook, we may recalibrate and slow our investment pace over the next nine to 18 months," Temasek managing director of investment Alpin Mehta said.

But if markets and valuations correct significantly, that might change as investments become attractive, said Rohit Sipahimalani, Temasek joint head, portfolio strategy and risk group.

The US accounted for the largest share of new investments in FY2018, followed by China and Europe. The Americas and Europe now combine to make up almost a quarter of the portfolio, behind Singapore's 27 per cent and China's 26 per cent.

Last year Temasek set up an office in Washington DC to track policy developments that may affect its business. That makes it Temasek's third office in the US; the other two are in New York and San Francisco.

Since 2011 Temasek has been increasing its focus on the technology, life sciences, agribusinesses, non-bank financial services and consumer sectors. During the year, those focus sectors made up nearly half or S$13 billion of new investments. Its exposure in these focus sectors now make up about S$80 billion, or 26 per cent of total portfolio, up from S$9 billion, or 5 per cent, of a smaller portfolio in 2011.

Temasek has a 60:40 underlying exposure to mature economies and growth regions.

Singapore's share of the portfolio slipped from 29 per cent to 27 per cent. China's share, however, went up from 25 to 26 per cent. North America, which represented a 10 per cent share in FY2016 and 12 per cent in FY2017, now forms a 13 per cent share of geographical exposure. Europe's share has also increased to 9 per cent from 8 per cent.

Australia and New Zealand accounted for 7 per cent in FY2018, down from 8 per cent in FY2017 and 9 per cent in FY2016.

Mr Sipahimalani said that while Singapore's portfolio share was declining, it was still growing in absolute size in the past two years.

"It's just that its share of the portfolio has gone down partly because of incremental opportunities that we've seen in other parts of the world," he said. "In some sense that's natural, 15 years back we were investing primarily in Singapore, now that we have a global footprint and themes that we talked about that we think can give us stable returns over the long term, a lot of those themes are global, and so therefore we would find opportunities in the US, Europe, China and elsewhere."

Temasek will continue to invest in Singapore if the right opportunities present themselves, he added.

Png Chin Yee, Temasek head, financial services, said there are no specific targets for portfolio mix.

SingTel remains Temasek's largest single investment at 9 per cent of the portfolio, down from 18 per cent in 2008 and 46 per cent in 1998.

SingTel's share price has been performing poorly, with market cap down 14 per cent in the year under review.

"We can't look at things from just a one-year perspective. SingTel has been a steady dividend payer, if you take longer periods, in the last 15 years, SingTel's return has been in double digits," said Mr Sipahimalani.

READ MORE: Temasek pumps more into early-stage firms in agribusiness, healthcare and digital media