Singapore's state-owned investment company Temasek Holdings, whose profit slumped and investment portfolio grew at a sharply lower pace in the last financial year, is warning that global growth may worsen, due in part to rising trade and geopolitical tensions.
Almost three-quarters of Temasek’s assets are outside of Singapore.
The company’s net profit shrank 45.62% year-on-year to S$11.8 billion (US$8.70 billion) in the year ended March 31, 2019, which it attributes partly to a change in accounting rules that requires taking into account unrealised gains and losses on investments where it holds less than 20%.
The net value of its investment portfolio rose 1.62% to S$313 billion, a sharp slowdown from the 12% gain in the prior year.
Global growth has already begun to "moderate" and this "may be worsened by the growing trade and geopolitical tensions", Temasek Chairman Lim Boon Heng says in the Temasek Overview 2019 report released on July 9.
He says slowing global growth has resulted in activity moderating in Singapore, and cautions that there may be "further downside risks" from an escalation of geopolitical tensions, though the city state may benefit from greater trade and investment within Southeast Asia.
"We expect certain segments of the economy, including professional, financial and technology services, to remain resilient," he adds.
According to Mr. Lim, a prolonged trade standoff with the US may put more pressure on China. Nevertheless, he remains optimistic about China’s medium-term outlook and expects “more reform efforts to transit the economy towards a more sustainable growth path".
Temasek’s investments in Singapore accounted for 26% of its total portfolio, down from 27% in March 2018. Its China exposure was steady at 26%.
Investments in Asia, excluding Singapore and China, dropped to 14% from 15%, and was down to 6% from 7% for Australia and New Zealand.
The company’s North American investments grew to 15% from 13% and its European investments climbed to 10% from 9%.
Temasek made S$24 billion of investments in the last financial year, down from S$29 billion a year ago, and divested S$28 billion of assets, up from S$16 billion previously.
According to Dilhan Pillay, chief executive officer of Temasek International, Temasek’s wholly-owned management and investment unit, the company has been investing in "structural trends driven by transformation technologies, sustainable living, longer lifespan, and changing consumption patterns as people's income grow and lives get uplifted".
"Going forward, we will increasingly reshape our portfolio in line with these trends. We continue to build our portfolio for the future by increasing our exposure in unlisted companies. Investments in this space have generally performed well and provided us with better returns than listed ones since 2002," Mr. Pillay says in the report.
Unlisted assets accounted for 42% of Temasek’s portfolio as at March 31, up from 39% a year ago.