BREAKINGVIEWS-Singapore's Temasek waves timely Buy America flag

By Una Galani

HONG KONG, July 9 (Reuters Breakingviews) - Singapore's sovereign investors are hardly contrarians, but on Wednesday one of them offered a timely reminder of the enduring appeal of the "Buy America" trade. It offers a clue to how far other global funds will go underweight on their allocations to the world's largest economy despite the increasing volatility and wobbles in the U.S. dollar caused by President Donald Trump's policies.

Temasek's portfolio value rose 12% to $339 billion in the year to March, led by gains in listed assets. That's an improvement on stagnant growth in the prior year, though its 10-year total shareholder return fell one percentage point to 5%. The fund led by CEO Dilhan Pillay Sandrasegara is steadily increasing its footprint in India and Europe, the Middle East and North Africa. But the Americas is the only region where Temasek grew its exposure, measured by headquarters of portfolio companies and underlying assets, year-on-year, and it remains the largest destination for its incremental capital.

Yet Temasek is a latecomer to investing in the West. It opened its first office in New York in 2014. At 24% of its overall underlying portfolio and 33% of its international portfolio, the Singaporean is massively underweight the 64% U.S. allocation of the MSCI All Country World Index .MIWD00000PUS. By increasing its exposure to the Americas, Temasek is reducing another problem: its 18% exposure to China's slowing economy looks too high at six times the MSCI allocation.

The message is clear. For funds trying to shield their portfolios from heightened geopolitical and trade uncertainties, the U.S. is hard to beat: American companies have stable cash flows and earnings, and a large home market that is relatively self-sufficient. Temasek also cites the deep capital market and the economic potential of artificial intelligence.

This exposure today comes at a steep price, however. The S&P 500 Composite .SPX is trading at 22 times earnings, near its highest level in the past 20 years, LSEG data shows. Temasek is kicking its concerns about high U.S. government debt and the knock-on effect for the dollar down the road. It reckons the short-term policy risks around immigration, tariffs and fiscal tightening have peaked. If they haven't, buying America now will be costly.

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CONTEXT NEWS

Singapore state investor Temasek on July 9 reported a record net portfolio value of S$434 billion ($339.12 billion) for the financial year to the end of March, a 12% increase from the previous year. Temasek's 10-year total return fell by one percentage point to 5%.