‘Worst of the headwinds are now probably behind us’: Temasek on economic outlook
Momentum on AI capital expenditure is back, and fears of fiscal tightening have also eased
[SINGAPORE] The first half of 2025 was marked by “very high uncertainty” – from fears of a collapse in artificial intelligence (AI) capital expenditure, to concerns over fiscal tightening in the US and Europe, and tariff shocks from the US.
But the “worst of the headwinds are now probably behind us”, said Rohit Sipahimalani, chief investment officer of Singapore investment company Temasek.
On AI capex, the “momentum is back” and “people are very confident”, with estimates of spending now trending upwards, he noted.
Fears of fiscal tightening have also eased, as “most governments globally” are now spending more, he added.
As for US President Donald Trump’s “Liberation Day” tariffs, Sipahimalani said tariff levels “probably (won’t) go back” to the peak levels seen during the earlier roll-out.
On Tuesday (Jul 8), 14 countries – including Japan, South Korea, Malaysia and Indonesia – received letters from the White House detailing their tariff rates, which were largely consistent with those announced by Trump in April.
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Sipahimalani and other members of Temasek’s senior management were speaking to The Business Times at the investor’s annual Temasek Review, which provides an update on its performance, highlights and group financials for the latest financial year.
Temasek reported a record net portfolio value of S$434 billion for the year ended Mar 31, 2025, with its one-year total shareholder return (TSR) rising 11.8 per cent in Singapore dollar terms.
Its 10-year and 20-year TSRs were stable at 5 per cent and 7 per cent, respectively.
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Strong balance sheets
Looking ahead, “I wouldn’t say there’s something which is really staring at us, which says that there’s something very negative (that is) going to happen, so we’ll see”, said Sipahimalani.
But even if shocks emerge, Temasek would not be able to control how external events unfold or how stock markets respond, noted deputy chief executive officer Chia Song Hwee.
What the investor can do is continue working with its portfolio companies to boost resilience, he added.
Temasek continues to stress to its key portfolio companies that they need to have strong balance sheets, said Chia. “So that also applies to ourselves, right? Maintaining a strong balance sheet so that we can resolve shocks when they come.”
Chief financial officer Png Chin Yee elaborated on this point.
Since the Covid-19 pandemic, Temasek has worked with its portfolio companies to ensure they have sufficient liquidity and an optimal capital structure, she said, including paring down debt where appropriate.
Key companies in Temasek’s portfolio include DBS, Singtel, Singapore Airlines, ST Engineering and PSA.
“I think today, they’re in a much better position to actually tackle the challenges that are coming through,” said Png.
Stress tests conducted annually by Temasek support this view, added Sipahimalani. “Right now, based on just the last few years... we’re very comfortable with the strength of their balance sheets.”
US dollar weakening
One risk that Temasek is watching closely is the weakening of the US dollar.
As the investor reports performance in Singdollar terms, a weaker greenback creates a drag on returns from assets denominated in US dollars.
Since March, the greenback has depreciated by about 5 per cent against the Singdollar – and that “has an impact”, noted Png.
However, only around 24 per cent of Temasek’s portfolio is exposed to US dollar-denominated assets, and the company also selectively hedges its foreign exchange risks.
“But obviously hedging also has a cost associated with it, so the headwinds from foreign exchange movement is something that we’re actually quite mindful about,” Png added.
Still, a weaker US dollar can offer some upside for American companies with significant overseas earnings, noted Sipahimalani. “If you can manage to mitigate the currency risk, actually it makes the earnings growth slightly higher,” he said.
Opportunities abroad
Temasek continues to see opportunities in the US, particularly in the AI space, though these are tempered somewhat by high equity valuations.
“They are high by historical standards, and so you have to be disciplined and make sure that you find the right opportunities,” said Sipahimalani.
In China, Temasek has been “fairly steady” in its capital deployment, with a focus on domestic sectors such as consumer brands and sustainability.
One recent investment was in a commercial solar firm that installs solar panels on factory rooftops and similar structures.
China is Temasek’s third-largest market, making up 18 per cent of its portfolio. The Americas account for 24 per cent, and Singapore leads with 27 per cent.
In China, Temasek targets investments that are more “self-contained” within the local economy, reducing exposure to external shocks, said Chia.
That same logic is also applied elsewhere – favouring businesses with a narrower range of outcomes regardless of macroeconomic shifts, Sipahimalani added.
This includes companies serving large domestic markets, such as hospitals, banks and consumer brands in India.
“None of that really gets impacted by what’s happening in global geopolitics, as such,” he said.
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