Temasek Holdings Pte’s portfolio declined for the first time in seven years as its holdings, a quarter of which are in Chinese equities, were battered by last year’s market rout.
The value of Temasek’s stakes decreased 9% to S$242bil (US$179bil) in its fiscal year ended March 31, according to the Singapore state investment firm’s annual review released yesterday. Assets fell from a record S$266bil in the prior fiscal year and dropped for the first time since the 12 months ended March 2009.
As global growth has slowed and the markets have been whipsawed by volatility, Temasek is reshaping its portfolio and tempering expectations for future returns. The state investment firm is cutting its exposure to banks while adding to holdings in media, telecommunications, and technology companies, with the latter group overtaking financial firms as Temasek’s biggest industry sector.
“The equity markets around the world will remain susceptible to bouts of volatility in the short and medium term,” Michael Buchanan, Temasek’s senior managing director, portfolio strategy and risk group, said in a statement. “There is increased uncertainty, partly reflecting the ongoing hangover from the excesses that help cause the global financial crisis. This suggests an environment of lower returns in the years ahead.”
Temasek made a 6% annualised total shareholder return, including dividends, over the last 10-year and 20-year periods. The compounded total shareholder return since inception in 1974 was 15%.
The investment firm had more than half of its assets in China and Singapore, leaving it particularly exposed to a 21% slump in China’s CSI 300 Index and an 18% decline in Singapore’s Straits Times Index in the 12 months ended March 31.
Its stakes in companies in Singapore, where it is the biggest shareholder in about a third of the 30 members in the Straits Times Index, increased to 29% from 28%, while its China holdings, which include some of the nation’s biggest banks, were trimmed to 25% from 27%. North America holdings made up 10%.
Temasek made S$30bil in new investments in the 12 months ended March, matching the previous year’s, while divesting of a record S$28bil.
“We saw the liquidity-driven market rally earlier in the year, and took the opportunity to step up our divestment pace, relative to the past few years,” Lee Theng Kiat, who was appointed last year as CEO of Temasek International, said in the statement. “The record divestment reflected in part our plan to reshape our portfolio, in line with what we saw were the longer term trends, such as in the financial, life sciences or digital space.”
Temasek reduced its stake in China Construction Bank Corp, it said. Banks now make up less than 40% of its investments in China, down from 70%, while Temasek has diversified into sectors such as non-banks and technology, which now together account for 22%, and consumer and real estate with a combined 20%. China’s bad loans are surging, with nine of 15 respondents in a Bloomberg survey at the end of last month predicting a government-funded recapitalization of the banking system will take place within two years.
Temasek remains comfortable with its positions in Chinese banks: It increased its stake in Industrial & Commercial Bank of China Ltd and invested in Postal Savings Bank of China.
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