Temasek has just released its 2024 Annual Review, marking the firm’s 50th anniversary.
As of 31 March 2024, its portfolio value stood at S$389 billion, a slight improvement of 1.8% year on year from the S$382 billion a year ago.
However, this figure still falls short of Temasek’s peak portfolio value of S$403 billion in 2022.
The firm attributed strong growth in its portfolio to investments in the US and India, which helped counterbalance the underperformance of China’s stock markets.
Temasek’s chairman, Lim Boon Heng, highlighted that fiscal year 2024 (FY2024) has been complex.
Geopolitical tensions and headwinds in financial markets stemming from sticky inflation in the US hammered the global economy last year.
In line with its T2030 strategy, Temasek remains committed to building a forward-looking portfolio.
The T2030 strategy involves more than just building a forward-looking portfolio and has three additional pillars.
These other pillars focus on investing sustainably, developing capabilities for the future and nurturing Temasek’s future talents.
1. Temasek’s continued robust performance
Temasek’s one-year total shareholder return (TSR) for FY2024 came in at 1.60%. This performance marks a significant improvement from the previous fiscal year’s performance of -5.07%.
However, as Temasek invests for the long term, assessing its longer-term TSR will be a fairer representation of the firm’s performance.
The 10-year TSR stayed stable at 6% compared to the previous fiscal year 2023 (FY2023).
On the other hand, the 20-year TSR decreased to 7% from FY2023’s 20-year TSR of 9%.
This is because the 20-year TSR this fiscal year excluded the 2004 post-SARs recovery.
Temasek’s TSR since its inception in 1974 stands at 14%.
This impressive track record reflects Temasek’s ability to construct an effective investment portfolio that can successfully navigate different economic fluctuations.
For FY2024, Temasek generated dividend income of S$9 billion.
Temasek’s liquid assets (comprising cash and cash equivalents along with some listed stocks) have increased year on year, from S$104.5 billion in FY2023 to S$113 billion in FY2024.
This increase led to total debt due in the next 10 years coming in at its lowest level of 15% of liquid assets in the past five fiscal years.
2. A focus on new regions
In FY2024, Temasek made significant adjustments in its portfolio allocation across various regions.
The Asia-Pacific region accounted for 65% of total investments.
Singapore represented 27% of Temasek’s portfolio, maintaining its status as Temasek’s main anchor.
However, there was a noticeable reduction in investments based in China, decreasing from 22% in FY2023 to 19% in FY2024 because of a fall in the market value of these investments.
Geopolitical tensions between China and the US have increased, leading to the possible imposition of tariffs on Chinese goods.
This unstable relationship has also led to a decline in multinational corporations’ activities and foreign direct investment in China.
In response to these global shifts, Temasek chose to diversify its investments further.
For FY2024, Temasek increased its exposure to several regions.
The investment firm is beginning to ramp up investments in India, with Temasek seeing more opportunities in consumer healthcare and financial services.
Additionally, Temasek is expanding its reach in Europe, the Middle East, and Africa (EMEA) region, as seen from the opening of its Paris Office in April this year.
Japan is also on Temasek’s radar for increased investment activities.
Vertex Holdings, a venture capital arm of Temasek, has just launched a ¥10 billion fund to support leading Japanese startups.
3. Including unlisted assets within its portfolio value
In terms of portfolio activity, FY2024 saw Temasek invest S$26 billion and divest S$33 billion, with a net divestment of S$7 billion.
This reflects a cautious strategic approach as the manager expected a recession in the US.
The portfolio has also seen the unlisted assets grow from 20% to 52% over the past 20 years.
Unlisted assets have generated annual returns of 9%, outperforming the overall portfolio’s returns of 6% per annum.
Temasek has marked the value of its unlisted investments to market, rather than disclosing them at book value less impairment. This practice is to enable Temasek to be more in line with its peers.
After marking the value of its unlisted investments to market, which are worth S$31 billion in FY2024, Temasek’s total portfolio reaches S$420 billion.
This markup is also S$2 billion more than the value of the previous year’s unlisted investments.
Notable unlisted investments include positions in Ant Group, Singapore Power and Mapletree Investments.
For listed assets, Temasek actively adjusted its stakes across various regions and sectors.
In India, the investment firm upped its holdings across some of India’s largest banks, such as ICICI Bank (NSE: ICICIBANK) and HDFC Bank (NSE: HDFCBANK).
Temasek also invested in several blue-chip companies, including Microsoft (NASDAQ: MSFT) and Netherlands’s ASML (NASDAQ: ASML).
Temasek increased its stake in Singapore’s Sea Limited (NYSE: SEA).
4. Sustainability and technology
Temasek remains steadfast in its commitment to sustainability.
This year will usher in the publication of Temasek’s first-ever sustainability report to underscore the firm’s dedication to sustainable investments while upholding transparency.
Temasek aims to achieve net carbon emissions attributable to its portfolio to zero by 2050.
The firm has built up its investment in sustainable living initiatives to S$44 billion in FY2024.
Electric vehicle manufacturer BYD (SEHK: 1211) and Electric Hydrogen, a company exploring green hydrogen as an energy source, are some of the companies in Temasek’s green portfolio.
Furthermore, Temasek actively engages with its major portfolio companies regarding climate goals, with 11 out of the 19 major companies aligning with Temasek’s target to achieve net-zero emissions by 2050.
Apart from sustainability, Temasek acknowledges the integral role of technology, particularly artificial intelligence (AI), in our lives.
In response to this AI trend, the firm has strategically invested in companies that are able to implement AI on a large scale.
Several companies in Temasek’s portfolio are actively increasing their involvement in AI, such as Singtel (SGX: Z74), which plans to build green, sustainable, and AI-ready data centres.
5. A watchful eye on risks
While FY2024 has been another successful year for Temasek, the firm still emphasises certain risks for the year ahead.
Geopolitical tensions are a significant concern with the ongoing wars in Gaza and Ukraine.
These conflicts pose a risk to global trade and supply chains, even as many economies show signs of solid growth.
Overall, Temasek maintains an optimistic outlook for the next two years.
Investments are expected to remain firm, led by increased infrastructure-led capital expenditure, accelerated supply-chain diversification, and a rebound in private consumption.
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Disclosure: Aw Kai Rui does not own any of the stocks mentioned in this article.
