Singapore's Temasek Holdings posted the smallest rise in its portfolio in three years as key bank stock holdings declined in value, and the state investor said it was increasingly focusing new investments in North America, Europe and on unlisted firms.
Like larger sovereign wealth fund GIC, Temasek cited the U.S.-China trade war and a low interest rate environment as factors that would trim return expectations for the longer term, underscoring the pressures faced globally by investors.
"Trade and technology tensions are already disrupting supply chains, business confidence is being tested and capital investments have slowed," Png Chin Yee, a senior managing director at Temasek, told a news conference on Tuesday.
"If growth remains weak, the low interest rate environment is likely to persist. This could lower returns expectations into the foreseeable future," she said.
Temasek's 1.6% portfolio gain for the year to March 31, 2019 came after a 12% increase a year ago and took its net portfolio value to a record S$313 billion ($230 billion). MSCI's Asia shares ex-Japan index and Singapore's main index fell about 6% over the same period.
In U.S. dollar terms, its portfolio value fell to $231 billion from $235 billion, Temasek said. Total shareholder return fell to 1.5% in the past year in local currency terms, down from 12% a year ago.
Washington and Beijing have slapped tariffs on billions of dollars of each other's imports, stoking worries that the year-long trade war would escalate. Those tariffs remain in place while negotiations resume.
"We expect slower growth everywhere. The U.S. will grow below trend and Europe is already struggling due to lacklustre exports," said Jeff Ng, chief economist for Asia at Continuum Economics. "One key factor that is underpinning weaker fundamentals is the uncertainty on policies."
Headed by Ho Ching, wife of Singapore's prime minister, Temasek's key holdings include DBS Group, China Construction Bank, Alibaba Group and Standard Chartered PLC.
Temasek remains anchored in Asia, with a 66% exposure to the region by underlying assets. But the United States again accounted for the largest share of its new investments in the latest year, followed by Europe and China. Europe and North America now make up a quarter of its total portfolio.
Ranked among the biggest in the world, Temasek has also been expanding its technology sector investments.
In the past year, it invested in companies such as tech services firm UST Global, Indian ride-hailing company Ola and French aerospace firm Safran. Unlisted assets made up 42% of Temasek's portfolio, up from 39%.
Temasek is increasing its early stage funding in companies that are taking advantage of artificial intelligence, resulting in these investments, including indirect ones through venture capital funding, making up 3 percent of its portfolio.
Temasek's divestments of S$28 billion outpaced its investments of S$24 billion in the past year.
When asked about a sharp drop in shares of its portfolio company Bayer and whether Temasek still had confidence in the German pesticides firm and drugmaker, its executives said they were committed to the company.
John Vaske, head of Temasek's agribusiness investments team, said Bayer's operating metrics had mostly held in line with Temasek's expectations. "The long term thesis that we underwrote initially, remains true today and our confidence level is high," he said.
Bayer's shares have plunged following its $63 billion acquisition of Monsanto, which brought with it massive legal issues.