Starting with the characteristics of our Temasek portfolio, we use T-GEM to simulate our likely returns for the medium to long term, under various economic scenarios. As of March 2015, we have five economic scenarios as described in the table below.

The geometric returns distribution curve shows the range of possible returns on a compounded and annualised basis at the end of a defined period, whether 5, 10, 20 or more years.

The annual or arithmetic returns distribution curve shows the range of returns in any one year during the defined period. It is an indication of year to year volatility. 

Economic Scenarios Description
Goldilocks Realised outcomes in key markets exceeding expectations on better growth and reforms
Central Our baseline expectations of growth
Euro zone Deflation Persistent deflation in Europe resulting from initial inadequate policy responses
US Monetary Shock Rising inflation expectations leading to the Fed tightening more aggressively than expected
China Credit Stress Much faster and larger realisation of credit losses in the financial system but not to extent of a systemic failure

Economic Outlook and Assumptions

Based on our views of the economic outlook, we develop a series of scenarios each year, adding new ones as new risks appear and dropping old ones which are no longer relevant.

We have more granular year to year assumptions for the first five years, and less granular long term assumptions beyond ten years, without assuming a reversion to historical mean. The second five-year period is treated as a transition phase, broadly interpolating from the end of the fifth year to the beginning of the 11 th year.

Our Central Scenario reflects our view of the most likely economic pathway. This is a generally benign outlook, without sharp policy rate hikes in the US, no outright deflation in the Eurozone, manageable credit risks in China, and a tight labour market in Singapore albeit with stable price levels on an overall basis.


Economic Scenario Pathing (Illustrative)


T-GEM 20-year Simulations for Different Portfolio Mix

The T-GEM simulations for 20 years under our Central Scenario are shown below for a Global Equity Portfolio, a Thematic Portfolio mimicking Temasek geographical and sectorial mix, and the Temasek Portfolio with its concentration and illiquidity risk premiums.

As can be seen, the geometric returns distribution curve for the Temasek Portfolio shows a higher likelihood for higher positive returns (see blue shaded) at the end of 20 years, versus the two other portfolio mixes. 

All three portfolios have volatile year to year returns.

(as at 31 March 2015)

Likelihood of Geometric (Compounded Annualised) Returns at the end of 20-year period by Portfolio Mix



(as at 31 March 2015)

Likelihood of Year to Year Annual Returns during 20-year period by Portfolio Mix



Temasek’s 20-year Expected Returns for Various Scenarios

The T-GEM 20-year returns curves for the Temasek Portfolio are shown below for the Goldilocks, Central and China Credit Stress Scenarios.

If all goes well under the Goldilocks Scenario, we could see an uplift of over 1% against the Central Scenario outcome, in terms of our expected returns at the end of 20 years. Conversely, our expected returns would be reduced by almost 2% in a China Credit Stress Scenario. 

We expect greater downside risks in yearly returns for a China Credit Stress case, than for the Central or Goldilocks Scenarios.

(as at 31 March 2015)

Likelihood of Geometric (Compounded Annualised) Returns at the end of 20-year period by Scenarios



(as at 31 March 2015)

Likelihood of Year to Year Annual Returns during 20-year period by Scenarios