Temasek Says Markets Entering Period of Stress in Next 2 Years

Temasek Expects Smaller Returns Amid Difficult Years
Temasek Holdings. Photographer: Munshi Ahmed/Bloomberg

Temasek Holdings Pte, Singapore’s state-owned investment company, said it expects the markets to enter a “period of stress” for the next one to two years amid the European debt crisis, adding risks to investments.

European leaders will do “everything necessary” to keep Greece in the 17-nation euro, German Finance Minister Wolfgang Schaeuble said yesterday. Group of Eight leaders on May 19 urged Greece to stay within the euro area as polls in the country showed a close race between parties supporting and opposing the European Union bailout deal.

“Notwithstanding our assessment of long term value, markets may be entering a period of stress in the next 12 to 24 months due to the Euro zone crisis,” Tan Chong Lee, Temasek’s chief investment officer, said in a statement on its website. “There will be some near-term risks as well as opportunities for Temasek as we continue to invest and divest steadily.”

Temasek, which managed S$193 billion ($152 billion) at the end of March 2011, may be seeking more investments at a time when global markets are set for their biggest losses in eight months. Citigroup Inc. lowered its recommendation on the MSCI Emerging Markets Index at the end of last week to neutral because the gauge is no longer likely to outperform global equities amid concerns about the European debt turmoil.

The MSCI World Index has fallen 7.7 percent since the start of May, set for worst monthly declines since September, while the measure tracking developing markets has fallen for nine straight weeks, the longest string of weekly losses since 1994.

North America Head

“We have been at the mercy of news flows from Greek debt and this will continue,” said Khiem Do, Hong Kong-based head of Asian multi-asset strategy at Baring Asset Management Asia Ltd., which oversees about $10 billion.

Temasek last week named Boon Sim, former global head of mergers and acquisitions at Credit Suisse Group AG, as its president for North America. It added that Sim will also work closely with teams to support its interests in Latin America and Europe.

The state-owned investor also sold $2.48 billion of shares in Bank of China Ltd. and China Construction Bank Corp. at the start of May, less than a month after investing in their larger competitor Industrial & Commercial Bank of China Ltd. The investment company has 5.3 percent of ICBC’s Hong Kong-traded shares after the purchase, Tan said. The company still holds 7.4 percent of China Construction Bank and 3.7 percent of Bank of China’s stock traded in Hong Kong after the stake sales, he said.

Balanced China Growth

“Our investment decisions are based on our fundamental assessment of long term value,” Tan said in response to a Today newspaper reader asking Temasek to clarify its holdings on Chinese banks. He added that China is “in a transition towards a more balanced and sustainable growth path.”

China’s economy expanded last quarter at the slowest pace in almost three years. The country’s gross domestic product expanded 8.1 percent in the first three months of 2012 from a year earlier in the fifth straight quarterly deceleration, as authorities cracked down on property speculation and exports were hurt by Europe’s debt crisis.

“The mega infrastructure projects and the boom in net exports have decelerated quite significantly,” Baring’s Do said. “In the past, China’s growth is between 10 and 12 percent. Over the next few years, it has to be between 7 to 9 percent.”

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