July 12, 2017 / 6:54 AM / 4 months ago

Temasek's garage sale highlights capital dilemma

HONG KONG (Reuters) - Singapore’s garage sale highlights a global capital problem. State investor Temasek sold more assets last year than it bought, its annual report published on Tuesday showed. It is the first time the equity-focused investor has made a net divestment since 2009. With stock market valuations high and stiff competition for assets, this trend looks set to continue.

An executive prepares to take the stage during the annual Temasek Review in Singapore July 7, 2016. REUTERS/Edgar Su

Temasek’s portfolio is bigger than ever, the value of its assets stood at S$275 billion ($199 billion) at the end of March. The fund delivered an impressive 13.4 percent total return over the year. A global stock market rally helped, as did cashing in on some S$18 billion of investments.

But new investments during the year dropped to S$16 billion, around half the level of the previous year. Temasek does not break down the pure cash component of its portfolio. But a two percentage point increase to 33 percent in the portion of assets the fund partially defines as liquid suggests that dollars may be starting to accumulate. That means replicating this year’s solid returns is going to be tough.

For a start, valuations for listed companies are stretched. The MSCI All Country World Index is trading at 15.8 times forward earnings, a multiple close to the 11 year high which it hit in 2015, Thomson Reuters data shows. Another problem is that rival investors are awash with cash too. Private equity funds are already struggling to find a good home for their own investors’ money; these players had a mammoth $842 billion available for investment as of March 2017, according to alternative assets research firm Preqin.

Graphic: Valuations for global stocks are rising: reut.rs/2tGQo3d

Given the fund’s cautious outlook for the year ahead, Temasek’s garage sale may continue. High valuations might help to keep up returns but it will also ensure deploying capital is a difficult affair.

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