Volatile stock markets have sent the value of Temasek Holdings' portfolio down for the first time in seven years.
The investment firm's net portfolio value fell 9 per cent to $242 billion for the 12 months to March 31, down from a record $266 billion a year earlier.
Temasek noted in its annual report out yesterday that the decline was largely due to the drop in values of its listed investments, particularly those in the financial service and offshore marine sectors.
"A significant factor was the share price decline of our listed investments which are marked to market and therefore not realised losses," said Ms Png Chin Yee, the head of financial services and senior managing director for China.
Temasek's one-year total shareholder return came in at a negative 9.02 per cent. But this still outperformed the Straits Times Index, which tumbled 15 per cent, and Hang Seng China Enterprises Index, which fell 26 per cent between April last year and March this year.
Despite the challenging period, Temasek ended the financial year in a net cash position, and its dividend income was steady at $8 billion.
"While our returns for the year reflected the global economic slowdown, we have been actively reshaping our portfolio over the past few years in order to deliver sustainable returns over the long term," added Ms Png.
Temasek made $30 billion in investments during the year while divesting a record $28 billion of its portfolio on the back of a liquidity- driven market rally last year.
Among the key divestments were Stats ChipPac and stakes in Cognizant Technology Solutions, Lloyds Banking Group and Kweichow Moutai. Its investments over the year included firms in financial services, telecommunications, media and technology, and life sciences and agriculture.
The telecoms, media and technology sector comprised 25 per cent of the portfolio in the last fiscal year, leapfrogging financial services as Temasek's largest industry sector.
Financial service firms accounted for 23 per cent of the portfolio, down from 28 per cent last year.
Analysts viewed this lower proportion as positive in view of the "shaky global environment" in the next 12 months.
"Financials would probably feel the biggest impact. At global rates close to zero, the margins for banks would be quite dismal. If it goes into negative interest rates, banks will see that tightened even more," said KGI Fraser Securities trading strategist Nicholas Teo.
The United States accounted for the largest share of Temasek's new investments over the year, followed by China.
Singapore stayed its largest country exposure at 29 per cent, up from 28 per cent in the previous year. The portfolio exposure to Europe remained low at 8 per cent. Temasek said the impact from Britain's vote to leave the European Union on its portfolio has been "fairly modest".
"Our exposure to the UK itself is even smaller, it is predominately through Standard Chartered, which while listed in London does not have substantial banking exposure in the UK," noted Mr Michael Buchanan, Temasek's head of strategy and senior managing director for portfolio strategy and risk group.
Despite some market concerns over non-performing loans, Temasek said it remains comfortable with its positions in Chinese banks, noting that China offers significant growth potential in the long term.
In terms of outlook, the firm expects global equity markets to remain "susceptible to bouts of volatility in the short and medium term", as well as increased uncertainty, which suggest an environment of lower returns in the coming years.
CIMB Private Banking economist Song Seng Wun suggested that the firm could mitigate the potential decline in returns by keeping "an eye on more risky unlisted assets, with higher returns to compensate for the volatility in listed investments".