May 28, 2008 / 12:41 AM / 11 years ago

UPDATE 3-Temasek looks for investments in Mexico, Brazil

(Adds more analyst quotes, background)

By Saeed Azhar

SINGAPORE, May 28 (Reuters) - Singapore sovereign fund Temasek [TEM.UL] said on Wednesday it is looking for investments in Brazil and Mexico to tap growth in Latin America’s emerging economies and booming demand for commodities.

The move underscores the state investment firm’s recent focus outside its core Asian market, which excluding Japan accounted for 78 percent of its S$164 billion ($120.5 billion) portfolio last year.

Temasek made high profile investments in Western banks such as Merrill Lynch MER.N last year as lenders shored up balance sheets hammered by exposure to U.S. subprime mortgages and other risky credit investments.

The state firm said it has hired Lorenzo Gonzalez Bosco, former chief executive of Barclays Bank (BARC.L) in Mexico, as its new managing director for investment in that country. It will relocate Alan Thompson, its managing director for investment in Latin America, to Sao Paulo, Brazil later this year.

Chua Hak Bin, an investment strategist at Deutsche’s private bank, said the new focus on Latin America suggests Temasek wants to invest outside its key market into a region rich in resources.

“Latin America is benefiting from the commodity boom, and would be one natural play if you want to diversify,” he said. “Temasek investments in Latin America are also less sensitive politically.”

But Leslie Phang, head of investments at Schroders Private Clients, said investors coming late to the party in Latin America and Middle East also face investment risks if the oil and commodity boom reverses.

“The odds for boom-bust oil prices have risen significantly in recent months, hence presenting a risk for late stage allocation into resource-rich countries.”

Some other sovereign funds, which are less exposed to emerging markets than Temasek, are also looking beyond the developed world where a credit crisis has reduced returns.

Norway, which has a $400 billion oil fund, recently said it wants to put more money into emerging markets.

Emerging markets guru Mark Mobius told Reuters last month that Brazil was one of his favourite markets. It was the largest holding in the firm’s Templeton Emerging Markets fund at the end of February.

Temasek, headed by Ho Ching, the wife of Singapore Prime Minister Lee Hsien Loong, has faced some political and regulatory obstacles for investments in neighbouring countries such as Thailand and Indonesia.

Earlier this month, an Indonesian court ordered Temasek and its affiliates to sell one of its two Indonesian telecoms units, upholding an earlier ruling by the country’s anti-trust body.


Temasek said in a statement it had just started making initial investments in listed stocks in Latin America and in private equity, but did not provide any details.

“We believe the Latin American region holds long-term potential and offers attractive investment prospects,” Chief Investment Officer Tow Heng Tan said in a statement. “We will look seriously at opportunities that may arise, but we also do not seek to target any specific investment amount of capital within any given timeframe.”

With a combined gross domestic product of $3.3 trillion and economic growth of 5.2 percent last year, Latin America is home to some of the world’s strongest economies, the statement said.

Brazil and Mexico, the two largest economies in this region, accounted for 70 percent of the region’s GDP.

So far this year, Mexico’s IPC stock index .MXX is up 6 percent and Brazil’s Bovespa .BVSP is up 11 percent, out-performing a fall of more than 10 percent for MSCI’s Asia-Pacific ex-Japan Index .MIAPJ0000PUS.

Mexico is the world’s sixth-largest oil producer by volume while analysts are bullish on Brazil’s oil potential after big offshore finds by state firm Petrobras (PETR4.SA)(PBR.N) at a time of record oil prices CLc1. Mexico is also the world’s top silver producer while Brazil leads the world in biofuels.

However, Temasek is eyeing Latin America at a time when the region’s economies face a potential slowdown due to its trade links to the United States, which is facing a possible recession.

The World Bank’s vice president for Latin America, Pamela Cox, said earlier this month that growth for the region this year should be “more or less” 4.5 percent. Her last estimate of 4.8 percent was given to Reuters in April and was lower than a previous forecast of 5.1 percent.

She said the economic slowdown in the United States threatens to hit Mexico and Central America hardest because of their integration with the U.S. market.

Temasek is one of two Singapore sovereign wealth funds. Its peer, Government of Singapore Investment Corp (GIC), is estimated to have more than $300 billion in assets.

Temasek’s portfolio, as of March last year, was weighted towards financial stocks, with 38 percent of its holdings in either banks or financial services, including stakes in Barclays, Standard Chartered (STAN.L) and India’s ICICI Bank (ICBK.BO). (Editing by Jan Dahinten and Lincoln Feast)

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