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Singapore's Temasek may shed light on bank holdings, Europe plans
* Temasek may post modest returns in the last fiscal year
* Financial services portfolio hit by slumping Chinese bank shares
* Temasek has limited exposure to European assets
By Saeed Azhar
SINGAPORE, July 5 (Reuters) - Singapore state investor Temasek Holdings is expected to shed more light in its annual review on how it plans to reshuffle its portfolio as Asian bank shares slump, and where its European strategy stands as the euro zone debt crisis heads towards its fourth year.
Sovereign wealth funds such as China Investment Corp are struggling to deliver decent shareholder returns at a time when the European crisis and an anaemic U.S. economy are depressing capital markets from Brazil to Hong Kong. MSCI's broadest index of Asia-Pacific shares outside Japan fell 10.4 percent in the year ended March.
In its review due out soon, Temasek will likely post full-year financial results mirroring the modest returns reported by other state investors such as Norway's $600 billion sovereign wealth fund, which returned 2.28 percent in international currency terms in the 12 months to March 31.
Temasek, which has more than a third of its assets in banks, will particularly be weakened by declines in shares of Chinese banks and Indonesia's Bank Danamon.
The world's ninth-largest state investor was burned by its exposure to the financial industry in 2008 when its stakes in large European and U.S. banks plunged in value because of the turmoil in global markets. Yet Temasek, which translates as "sea town" in Malay, has said it wants to retain significant exposure to banks in emerging markets as a proxy to Asia's growth story.
Of the top 24 listed stocks in Temasek's portfolio, only three rose in the year ended March, according to a Reuters analysis. Those exceptions were SingTel, which rose 4 percent, and Thailand's Shin Corp, which almost doubled. Sembcorp Industries gained 1.3 percent.
SingTel accounted for 14 percent of Temasek's portfolio in the year ended in March 2011.
Temasek also holds a number of unlisted companies such as port operator PSA and Singapore Power, making it difficult to assess the overall performance of its portfolio.
Temasek probably found some respite from the profits it booked after selling part of its stakes in China Construction Bank and India's ICICI in the last financial year.
In the current fiscal year, Singapore's second-biggest sovereign investor has started to adjust its portfolio. Temasek paid $2.3 billion in April for a share of Industrial and Commercial Bank of China, the country's biggest bank. In May, it pared down stakes in China Construction Bank and Bank of China.
Temasek is planning to swap a 67 percent stake in Bank Danamon for an enlarged share of Singapore's biggest lender DBS Group, a deal awaiting regulatory approval in Indonesia.
"Asia's financial sector is on a very different trajectory from the ones in Europe and the United States," said Mark Matthews, Asia head of research for Julius Baer. "I don't see the same risks here."
Temasek, surpassed in size locally only by the Government of Singapore Investment Corp, earlier this year hired former UBS Chief Financial Officer John Cryan to oversee its strategy for Europe, where the state investor has limited exposure.
Cryan was the most high-profile hire by the firm led by Chief Executive Ho Ching, the wife of Singapore's Prime Minister Lee Hsien Loong. The hiring of Cryan has raised speculation that Temasek is eyeing distressed assets in the euro zone.
"Europe is in a crisis and the best time to buy things are when there is a crisis," Julius Baer's Matthews said. "If you look at many of these European markets, they have really collapsed. I would definitely be shopping around for assets in Greece and Spain."
To diversify its holdings, Temasek has also been pouring money into resources stocks including a 5.5 percent stake in Canada's Ivanhoe Mines .
But its investment in Chesapeake Energy did not do well in the last financial year, when the U.S. gas firm's stock tumbled more than 30 percent. (Additional reporting by Nishant Kumar in HONG KONG and Kevin Lim in SINGAPORE; Editing by Ryan Woo)
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