Analysts said the sovereign fund, which recently unloaded an Indonesian bank and a Singapore power producer, may choose to consolidate its hefty holdings in Chinese banks. Temasek last year was among the early big investors to call the top of the market, selling down part of its stakes in two big China lenders.
"We expect that increasingly investments will be funded out of sale of current investments. So as they continue to rebalance their portfolio there could be temporary or medium-term requirement for more resources," said Anshukant Taneja, who covers Temasek as a credit analyst at Standard & Poor's.
Taneja said that the large exposure could have a bearing on returns, but does not threaten its top credit ratings.
"There has been a higher volatility in the recent past and that could result in volatility in earnings with regard to Temasek's portfolio," he said. "This is a risk, but not as much to substantially affect their current ratings."
Temasek, headed by Ho Ching, the wife of Singapore Prime Minister Lee Hsien Loong, joined other state funds from the Middle East and Asia to provide lifelines to U.S. and European banks stung by the collapse of the U.S. subprime mortgage market.
But Merrill shares have fallen 11 percent since Temasek invested $4.4 billion in the firm and Barclays' stock price is down 38 percent since July when it raised 975 million pounds ($1.9 billion) from Temasek and 2.2 billion euro ($3.5 billion) from China Development Bank to fund a bid for ABN AMRO.
Temasek decided not to exercise its option to buy another $600 million worth of Merrill shares last month after the Wall Street bank's shares fell below the option price of $48.
Temasek currently holds stakes in Bank of China <3988.HK><601988.HK>, China Construction Bank <0939.HK><601939.HK> and medium-sized Chinese lender Minsheng Banking Corp <600016.ss>.
Of the three, Minsheng is the likeliest target for sale given that it is more vulnerable than its bigger peers to monetary tightening and higher cost pressures, Temasek watchers said.
"I would stick with the big banks, but not Minsheng," said a fund manager in Singapore, who declined to be identified because he cannot publicly talk about individual stocks.
"We are seeing increasing pressure on the banking sector because of monetary tightening, raising the potential for non-performing loans as property markets cool."
Minsheng does not have as strong a deposit-taking franchise as other large banks to support a low deposit cost structure, Morgan Stanley said in a report last month. Temasek owns close to 4 percent of Minsheng, a stake now worth about $950 million.
Temasek declined to comment for this article.
Last month, Temasek raised over $3 billion by selling Singapore power firm Tuas Power to China's Huaneng and offloaded its 42 percent stake in Indonesia's sixth-biggest lender, Bank Internasional Indonesia
The high-profile fund has not been exclusively on the sell-side in recent months.
Temasek has been building its stake in London-based bank Standard Chartered
Temasek is not alone in taking an increasingly cautious stance.
The International Monetary Authority said early this month that credit market turmoil could spread, with losses possibly approaching $1 trillion.
Guy De Blonay, a London-based fund manager for the 303 million pounds New Star Global Financial Fund, said it was important for investors to understand the full extent of the problems afflicting the financial sector. "In these conditions, a cautious approach is sensible and the fund is likely to maintain high levels of cash or cash equivalents for some time to preserve capital and flexibility," Blonay said of his own fund. "If valuations have slipped further by the summer, this may be used as an opportunity to move back towards being fully invested."