(Nov 19): Singapore state investor Temasek Holdings Pte has been “forced to hedge” the US dollar this year, according to its chief executive officer, calling the greenback’s weakness a big issue for foreign investors.
“The cost of hedging has now gone up because, I find, everybody’s hedging,” said Temasek’s Dilhan Pillay at the Bloomberg New Economy Forum on Wednesday in the city-state. “It’s come to a point now where the cost of my hedges are becoming too much, that I have to therefore think about a natural hedge.”
Pillay said that means Temasek has to look for investments that produce high-enough expected returns on a net basis for the risk associated with them. “Some US dollar-denominated assets will not give me a net return that would justify my allocation of capital there,” he said.
The Bloomberg Dollar Spot Index is down nearly 7% this year, while the greenback has depreciated around 5% against the Singapore dollar. The decline has eroded the returns of non-dollar-based investors, even though the US remains the top investment destination for many large institutions and asset managers.
Temasek, which reports its returns in Singapore dollars, has increased its allocation to the US over the years, with the Americas making up nearly a quarter of its S$434 billion (US$333 billion or RM1.4 trillion) portfolio as of end-March. It pledged in July 2024 to invest US$30 billion in the US over the next five years.
The government-owned company reported a one-year total shareholder return of 11.8% for its last fiscal year, and a 10-year return of 5%.
Still, US exceptionalism doesn’t look like it is at risk for now, said Pillay, citing the significant amount of foreign flows the country’s capital markets have drawn.
He said markets like India and China do not have the “absorption capacity” for a rotation of significant amounts of capital away from the US, and many alternative asset classes — from commodities to infrastructure — are also mostly dollar denominated. “The rotation is not easy, and that’s the reality,” he said.
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