SINGAPORE, Aug 2 (Reuters) - Singapore's state-owned Temasek Holdings warned that growing protectionism in Europe and the United States towards it and other sovereign wealth funds could hurt its expansion abroad in search of higher returns.
Temasek [TEM.UL], which owns stakes in Barclays, Standard Chartered, and Chinese banks, is one of a stable of huge state investors with deep pockets and global ambitions which are increasingly coming under scrutiny by Western governments.
The International Monetary Fund said in June it is growing uneasy about the trillions of dollars managed by largely secretive sovereign wealth funds because it fears their activities could disrupt financial markets.
"The free flow of investment is important for economic growth," said Ng Yat Chung, managing director of portfolio management at Temasek, at a briefing on Thursday.
"We would be concerned" about any move towards protectionism in the developed economies, he added.
Government-owned investment vehicles control around $2 trill ion -- roughly the size of France's economy -- and are expected to grow rapidly to $12 trillion by 2015.
Ng acknowledged concerns over investments by state funds in key sectors such as telecommunications and banks but said Temasek, owned by Singapore's finance ministry, was different.
"We distinguish ourselves by our transparency," he said.
Temasek reported a 29 percent drop in net profit to S$9.1 billion ($6 billion) for its 2006/07 financial year, from S$12.8 billion a year ago, on lower divestment gains and an impairment charge on Thai telecoms firm Shin Corp
Temasek declined to disclose the size of the impairment charge on its Shin stake, but its annual report showed a S$830 million loss from associated companies, which include Shin.
A Temasek-led consortium bought Shin, Thailand's biggest telecoms group, from former Prime Minister Thaksin Shinawatra last year for $3.8 billion. The sale helped spark a prolonged political crisis in Bangkok.
Temasek said it had made S$16 billion of new investments in its 2006/07 financial year, against S$21 billion in the previous year. Last month, the government-owned fund agreed to invest up to 2.1 billion pounds in British bank Barclays Plc
It divested assets of over S$5 billion in the financial year, against S$13 billion a year ago, while its portfolio value rose 35 percent to $108 billion from $80 billion.
"Temasek's investment outlook remains one of caution in light of medium-term geo-economic risks and signs of bubbly market conditions," Temasek Chairman S. Dhanabalan said in the review.
Temasek has expanded aggressively in Asia since 2002 in an effort to improve its long-term investment returns.
It reported a one-year total shareholder return by market value of 27 percent -- compared with a return of 32.6 percent on the city-state's Straits Times Index (STI) <.STI>, and a 20.7 percent return for a benchmark consisting of one third MSCI Singapore, the World, and Asia-Pacific excluding Japan.
Over a 10-year period, its total shareholder return of 8 percent compared with 9.3 percent for STI, and 7.9 percent for the MSCI index.
Temasek -- headed by Ho Ching, the wife of Prime Minister Lee Hsien Loong -- owns large stakes in many of Singapore's biggest firms, including Singapore Telecommunications
Temasek said that Singapore accounted for 38 percent of its total portfolio at the end of March, down from 44 percent in the previous financial year. Asia ex-Japan accounted for 40 percent of the portfolio, up from 34 percent in the previous year.