Temasek’s Assets Set to Top Peak After ‘Trailblazing’ in Emerging Markets

Temasek Holdings Pte’s assets probably reached a new peak after making “trailblazing” bets in emerging markets that outperformed global equities for a second year.

The Singapore state investment company may say the value of its assets rose to about S$200 billion ($163 billion) when it reports results for the 12 months to March 31, surpassing the S$186 billion record a year earlier, according to Victoria Barbary at Monitor Group and Song Seng Wun at CIMB Research Pte. Temasek trimmed its stakes in two of China’s three biggest banks yesterday, after raising its holdings in the world’s fastest growing major economy in the past year.

“It’s much more diverse, looking at the frontiers and broader range of emerging markets than we’ve previously seen as compared with other sovereign wealth funds,” said Barbary, a senior analyst at Monitor Group in London. “They’re quite trailblazing on that front.”

Temasek spent more in emerging markets including China, India, Pakistan, Brazil and Mexico, as developing nations led the global economy’s recovery from its worst recession since World War II. Developing economies accounted for 60 percent of the number of direct investments made by sovereign wealth funds last year, up from 53 percent in 2009, according to Monitor Group, which collects data on the funds.

‘Fairly Strong Showing’

“It’s just really a matter of time before it will reach that milestone” of S$200 billion in assets, said Song, an economist at CIMB Research in Singapore. “It should be a fairly strong showing.”

The MSCI Emerging Markets Index advanced 16 percent in the 12 months ended March 31, outpacing the 11 percent gain in MSCI World (MXWO) Index of developed nations.

Globally, sovereign fund assets climbed 11 percent from a year earlier to almost $4 trillion, London-based research firm Preqin Ltd. said in March. The market value of Norway’s sovereign fund increased 17 percent to 3.08 trillion kroner ($575 billion) last year.

Khazanah Nasional Bhd., Malaysia’s state investment company, said in January the net asset value of its investments increased to a record 75 billion ringgit ($25 billion) at the end of 2010 from 53.8 billion ringgit a year earlier.

Mapletree

Temasek is set to publish its annual report after Mapletree Investments Pte posted its results on May 25, one of its last units to release its financial statement. The property company said net income surged 90 percent to S$747 million in the 12 months to March 31 from a year earlier, as rents improved at its Singapore commercial properties and it earned more from new real estate in Japan and Vietnam.

Temasek raised HK$28.2 billion ($3.63 billion) selling stakes in China Construction Bank Corp. and Bank of China Ltd. (3988), two of the nation’s three biggest banks. The investment company sold about HK$18.8 billion of shares in Bank of China and about HK$9.4 billion in an offering of China Construction Bank stock, according to data compiled by Bloomberg.

“This sale is part of our portfolio rebalancing, which we do from time to time,” Temasek said in an e-mailed statement today. “Temasek continues to hold substantial positions in Chinese banks.”

In 2010, Temasek was the most active sovereign firm, making 38 investments, according to Monitor Group. Asian investments outside of Singapore and Japan made up 46 percent of Temasek’s portfolio as at March 31, 2010, up from 43 percent the year before, according to its annual report last year.

Succession Plan

The company, which aborted the appointment of Charles “Chip” Goodyear as chief executive officer in 2009, is seeking a successor to CEO Ho Ching, 58.

Last year, Temasek named Executive Director Simon Israel president, along with Gregory Curl, once a candidate for CEO of Bank of America Corp., and former Singapore Exchange Ltd. head Hsieh Fu Hua. Dilhan Pillay Sandrasegara, formerly the managing partner of Singapore-based law firm Wong Partnership LLP, joined Temasek as head of portfolio management in September. Israel then retired from his executive and board roles effective July 1.

“There are constant rumors about their leadership and they need to sort that out,” Barbary said. “It would be good for them to create certainty at the top there. It would be a good thing for investors to know, to have the last word on the subject.”

China Holdings

Temasek continued to increase its holdings in China in the past year, including shares in Agricultural Bank of China Ltd. (1288), even as the world’s fastest-growing major economy wrestled with price increases driven by higher food, fuel and labor costs. About 43 percent of Temasek’s $4.6 billion in direct investments announced in its recently ended financial year were in China, according to Monitor Group.

“Chinese inflation and overexposure to that market might be an issue for them,” Barbary said. “Given that they have to report every year, they’re going to have to make sure that the portfolio is very well balanced. With this increased emerging- market expenditure, they’ve got a lot more volatility.”

China’s stocks underperformed in the first half on concern government measures to cool inflation will slow the economy. The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, fell 1.6 percent in the period, compared with a 0.5 percent gain in the MSCI Asia Pacific excluding Japan Index.

Agricultural Bank of China, which last year completed the world’s largest initial public offering, gained 38 percent from its debut in Hong Kong on July 16 through March 31.

‘Rising Tide’

Seatown Holdings Pte, the investment unit that Temasek started in 2009, should contribute to gains as last year’s “rising tide” boosted returns, said CIMB’s Song. Seatown, funded with more than S$4 billion from Temasek, invests in various assets worldwide.

Temasek faces a “much more challenging environment” this year, Song said. The MSCI Asia Pacific Index and emerging-market measure lost as much as 9 percent from this year’s high on May 2 amid concern a slowing U.S. economy, Europe’s sovereign debt crisis and China’s steps to curb inflation will crimp earnings.

“Long term, the sectors and approaches an entity like Temasek is taking -- concentrated stakes in faster-growing emerging markets -- should position them well,” said Rachel Ziemba, senior analyst at Roubini Global Economics LLC in London. “But increasingly we see more downside risk to the global outlook than perhaps we did a couple of months ago.”

To contact the reporter on this story: Netty Ismail in Singapore nismail3@bloomberg.net.

To contact the editor responsible for this story: Linus Chua at lchua@bloomberg.net

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