SINGAPORE (July 9): Temasek Holdings held onto gains in its portfolio amid global trade uncertainties after selling $28 billion of holdings as US equity markets hit record highs and its unlisted assets outperformed.

The Singapore state investor’s net portfolio value rose 1.6% to $313 billion in the 12 months ended March 31. In US dollar terms, the portfolio value fell by 1.7%. One-year total shareholder return for the period was 1.49%, while three-year TSR came in at 8.88% in Singapore dollar terms.

Investors globally are facing a tough environment as the trade war between China and the US clouds the market outlook and potentially disruptive events like Brexit could dent returns. Singapore’s sovereign wealth fund GIC last week said overhyped valuations in developed markets were also a concern. London’s Sovereign Wealth Center and CIMB Private Banking economist Song Seng Wun had expected Temasek to report a decline in its net portfolio value for the period.

“Equity markets have been volatile for the past year and a half,” Dilhan Pillay, the chief executive officer of Temasek International, said. “Concerns remain around escalating tensions, especially between China and the US. These tensions may further moderate global growth. We also remain watchful around the risks of a late cycle recession in the US, while Brexit and political fragmentation continue to weigh on Europe.”

Temasek said it had anticipated an increasingly challenging environment, and moderated its investment pace. Total investments during the year fell to $24 billion from $29 billion the year prior. Divestments at $28 billion represent a peak reached only one other time (in 2016) over the past decade.

“We continue to build our portfolio for the future by increasing our exposure in unlisted companies,” Pillay said. “Investments in this space have generally performed well and provided us with better returns than listed ones since 2002.” Unlisted assets comprise 42% of the firm’s portfolio.

The state investor continued to expand its US holdings, which rose to 15% of the portfolio from 13% a year earlier. Its Singapore exposure fell to 26% from 27%, and now equals its exposure to China. Monetary Authority of Singapore Managing Director Ravi Menon warned in June that the city-state was reviewing its growth projections due to a deterioration in the global economy.

Some of Temasek’s biggest bets have suffered governance and legal setbacks over the past year. Temasek struck a 3 billion euro ($3.4 billion) deal to buy a substantial stake in Bayer AG in April 2018, only to see the German healthcare and agricultural giant lose more than one-third of its value amid a flurry of lawsuits relating to claims a weedkiller brand it acquired when it took over Monsanto Co. causes cancer.

It also still holds a large interest in US telecoms provider CenturyLink Inc., whose shares slumped 27% in the 12 months through March 31 after a string of setbacks including a customer lawsuit alleging fraud.

Accounting Changes

Financial services remain the largest share of Temasek’s portfolio, at 25%. The investor is a shareholder in Industrial & Commercial Bank of China, down 14.6% over the period, and DBS Group Holdings, down 8.3%.

Net profit for the group slipped 46% to $11.8 billion, its lowest level since 2016, although Temasek explained this was mainly due to a change in accounting rules.

Under IFRS 9, year-to-year changes in the market value of Temasek’s sub 20% investments will be accounted as profits and losses in its income statement, even when no sale has occurred. With sub 20% investments comprising around 40% of the group’s portfolio, the adoption of IFRS 9 will lead to material fluctuations in Temasek’s reported profits or losses, due to those paper gains or losses, it said.

Sovereign Wealth Center’s head of data and research Daniel Brett said Temasek’s portfolio was inextricably linked to the performance of Singapore’s economy.

“With Singaporean assets representing more than a quarter of its portfolio, Temasek’s performance will be heavily influenced by the returns of its domestic holdings,” Brett said in an email ahead of the release. “The decline in the FTSE Straits Times Index and the marked slowdown in the country’s GDP growth signal that heavy domestic exposure could undermine the sovereign investor’s total portfolio performance.”