Singapore investment firm Temasek has reported a net portfolio value (NPV) of SGD 382 billion ($284.61 billion) in financial year ended March 31, 2023 (FY23), a drop of 5.21 percent as compared to SGD 403 billion ($300.26 billion) in FY2022.

Temasek said in a statement on Tuesday that its Singapore portfolio companies remained resilient despite the drawdowns in the global markets and the challenging macro environment.

However, it said its global direct investments saw a reversal of gains from the high valuations in the last two years, particularly in the technology, healthcare, and payments space, as valuations de-rated in the higher interest rate environment.

Overall, the firm’s portfolio sustained its recovery from the lows during COVID-19, with a three-year total shareholder return (TSR) of 8 percent.

Its TSR since inception in 1974 remained a robust 14 percent, while its 20-year and 10-year TSRs were 9 percent and 6 percent, respectively.

Temasek said that in the past year, the firm has encountered persistent inflation despite multiple rate hikes by central banks.

Intensifying geopolitical tensions on several fronts such as US-China tensions and the Russia-Ukraine war, alongside rising nationalism and protectionism, have also led to a marked shift from globalization that has been the mainstay of global growth for the past 20 years, it said.

It said that the confluence of these events, not seen in decades, has raised the cost of capital and weighed on capital flows.

It said these factors also had an impact on the pace of energy transition, in the face of greater demand for energy security and resilience.

“We live in a volatile, uncertain, complex, and ambiguous world. 2022 has been the most challenging year for markets over the last decade,

“Against a backdrop of restrictive macro policy, lower growth, and a highly polarized geopolitical environment, the world is changing rapidly,” said Lim Boon Heng, Chairman, Temasek Holdings.

Meanwhile, Temasek Holdings Executive Director and Chief Executive Officer Dilhan Pillay said that as the firm navigates an increasingly complex world, there are significant key challenges in the future.

“For the first time in decades, sticky inflation and tighter monetary conditions are manifesting themselves in significantly higher interest rates,” he said.

He also noted the investment climate has become much more complex than what the firm has encountered since the global financial crisis.

“The confluence of rising geopolitical tensions, the risk of decoupling amidst a rethinking of globalization, the emergence of potentially restrictive, nationalistic and protectionistic policies amidst the proliferation of foreign investment regimes and the costs associated with energy security and energy transition portend lower global growth and lower real returns, are challenging issues that investors will have to grapple with,” he added.

It is noted that Temasek has slowed down its investment pace as it adopted a cautious approach amidst global uncertainties in FY23.

During the year, Temasek invested SGD 31 billion ($23.10 billion) and divested SGD 27 billion ($20.12 billion), resulting in a net investment of SGD 4 billion ($2.98 billion).

Over the decade, the firm has invested SGD 326 billion ($242.89 billion) and divested SGD 248 billion ($184.77 billion).

Its portfolio remained anchored in Asia (63 percent). Singapore (28 percent), China (22 percent) and the Americas (21 percent) continued to be its three largest markets by underlying exposure.

Its underlying exposure to developed economies, including Singapore, North America, Europe, and Australia and New Zealand was 64 percent, compared to 58 percent in 2013.

Going forward, Temasek said the global economy remains fragile, amidst intensified geopolitical developments such as US-China tensions and the effects of the Russia-Ukraine war.

It said monetary policy remains tight globally with high interest rates as inflation remains elevated.

It also said global growth is likely to slow and recession risks are looming in key developed markets, which could be exacerbated by a culmination of shocks such as the earlier banking stress that has resulted in a slowdown in loan growth, particularly in the United States.

“We maintain a cautious investment stance and expect to invest at a moderated pace this financial year, given the challenging macroeconomic environment,” said Rohit Sipahimalani, Temasek’s Chief Investment Officer.

However, given the firm’s strong liquidity position, he said the firm ready to step up its investments in a market correction.

“Amidst an increasingly complex and volatile backdrop, we will stay focused on investing into opportunities that align with our long term structural trends, so as to build a resilient and forward looking portfolio, as part of our T2030 strategy,” he said.

In the near term, Temasek said opined that Singapore faces slowing global growth and elevated inflation against a challenging macro backdrop.

While China’s reopening could provide some support, it said the Singapore economy is geared more towards domestic demand in developed markets, which could experience a recession.

Adding to the complexity, it said geopolitical tensions have risen, although Singapore could stand to benefit from diversification of supply chains around the region, both in the near and medium term.

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