Temasek Nets Best Return Since 2010, Says Inflation Key Risk

Temasek Holdings Pte posted its biggest annual return since 2010 after the Singapore state investor benefited from a rally in global equities, but warned that a temporary rise in inflation could be a risk to global markets.

The 25% gain for the fiscal year ended March 31 marks a turnaround from the previous year, when Temasek reported a 2.3% drop after the pandemic triggered a market meltdown. Since then, equities have breached record highs as major economies start to re-open.

“We’re fairly positive about how the economy is recovering,” Temasek International Investment Group joint head Nagi Hamiyeh told Bloomberg Television, while adding that bounce backs would depend on the pace of vaccines and the spread of Covid-19 variants. “The biggest risk is of course inflation, though I would think at this point we look at it as transitory. It might be with us for another year or so.”

Temasek joins other global funds and investors posting outsized gains as economies recover from the deep recessions of 2020. Japan’s Government Pension Investment Fund booked a record 25% return on its investments for the year ended in March, while a Kuwaiti sovereign savings fund had a 33% gain over the same period.

Temasek’s net portfolio value stands at S$381 billion ($282 billion), up from S$306 billion a year earlier. China remains its biggest market with investments making up 27% of the portfolio, followed by Singapore at 24%. The Americas accounted for the largest share of new investments during the year, and now make up 20% of the portfolio. The firm’s 10-year annualized return rose to 7%.

“Last year because we have a March cycle, markets were down at the time, they’re in a better place now, so the public portfolio has done well,” said Mukul Chawla, Temasek International joint head of North America. “But so have a number of our private companies,” after some of them benefited from public listings.

Airline Support

The improved performance comes despite several of Temasek’s best-known investments facing substantial hurdles. It’s had to buy billions of dollars worth of Singapore Airlines Ltd.’s convertible bonds amid a plunge in travel that led to a record loss of $3.2 billion last year. Still, the airline’s shares rebounded 37% in Temasek’s fiscal year.

When asked how long it would take Singapore Airlines to recover, Hamiyeh said it would likely be another year and a half, depending on how governments around the world deal with border relaxations and vaccines, and the effect of new variants.

Temasek also faces headwinds in China, where it’s focused on technology, fintech and wealth management. An expected windfall from its backing of Ant Group Co. failed to materialize when its listing was halted in November.

Temasek is also an investor in ride-hailing app Didi Global Inc., which saw its share price plummet days after it listed in New York when Chinese regulators ordered it off local app stores.

China Optimism

Hamiyeh was largely positive about the long-term growth of its investments in China, even as he cited tensions between China and the U.S. and European Union as key risks for the year ahead.

“Central banks’ abrupt actions that might worry the market is always another risk,” he added. “The Fed might be tightening, there’s an end to everything and that day will happen. We think it’ll be done in a fairly disciplined way so they don’t rattle the market.”

Investments in financial services including BlackRock Inc. and Visa Inc. now represent 24% of the portfolio, up from 23% in 2020, followed by telecommunications, media and technology businesses at 21%. Unlisted deals, which made up 48% of assets last year, now stand at 45%.

Hamiyeh said that valuations “might get out of hand in specific sectors, but by and large we are fairly constructive about the market,” especially in areas such as technology, e-commerce, digital health and agriculture.

©2021 Bloomberg L.P.

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