Radamel Falcao headed home in the first half for the Ligue 1 side, as the Gunners were prevented from retaining the Emirates Cup - with Valencia finishing as victors.
It could have been very different had Martin Atkinson not reneged on his initial decision to award a penalty when Chuba Akpom was brought down in the box close to full-time.
Nevertheless, Wenger was pleased with new signing Alexis Sanchez, who made his first start in Arsenal colours against Falcao and co.
Interestingly, the Frenchman said he was more impressed by the 25-year-old in the second half - after he had been moved into a central position, as opposed to his first-half showing out wide.
"It [Sanchez's performance] was quite surprising physically," Wenger told BT Sport.
"He’s not ready, of course, but he looked better in the second half. We looked better and much more dangerous than we did in the first half."
Wenger also refused to make excuses for his side's defeat, suggesting that he would have been a lot more concerned about Atkinson's late error were it not a friendly match.
"It is only pre-season so I do not want to start moaning about the referee," he said.
"I think we were not at the level physically today. You could see basically Monaco were stronger, sharper. If you do not win the challenges in the middle of the park then you don’t win the game.
"Ideally, you want to win every game but if you choose to lose one it would be a pre-season game. It’s a good warning for us because we are not ready physically today."
Meanwhile, Wenger confirmed that Thomas Vermaelen is not yet close to completing a move away from north London, adding: "Nothing is close to happening at the moment [with the Belgian.]"
Where should Sanchez play - through the middle or out wide?