Temasek investments in Americas cross bets on China first time in decade | World News

Temasek has long been one of the biggest institutional investors in China, which accounted for 29% of its portfolio as recently as 2020. But four years on, its holdings in the world’s second-largest economy have dropped to just 19% of the firm’s portfolio as of March, while investments in the Americas made up 22% of assets, second only to Singapore at 27%. 

The relatively subdued fiscal 2024 return comes at a critical juncture for Singapore and Temasek, which marks its 50th anniversary this year. The investment company’s returns, along with those from sovereign wealth fund GIC Pte and the Monetary Authority of Singapore, help form the national budget’s second-biggest source of funding. Singapore’s ruling party is facing its first election without a member of the Lee family as prime minister in decades, and the next poll will be a big test of voter support for its policies and performance.

Temasek executives said the US will remain the largest destination for the firm’s capital, and that it will continue to take a cautious approach to China. It is also planning to increase its bets on India, which accounted for 7% of its portfolio in March. In America, the firm sees investment opportunities in artificial intelligence enablers and adopters, and businesses that are benefitting from US industrial policy. 

“I can only see US-China tensions go up, not go down from here,” Chief Investment Officer Rohit Sipahimalani said in a Bloomberg Television interview. He said China’s property market needs to stabilize before there can be a revival of consumer confidence in the country.

“It’s clearly something that’s not lost on the Chinese government. They’ve been making pronouncements to help do that — we haven’t seen the results as yet,” Sipahimalani added. 

Temasek said most of the change in its China exposure was due to valuation declines rather than a pull-back from the country. But it comes as global fund managers have been paring back their exposure there amid heightened scrutiny from Washington DC and geopolitical tensions.

The main US federal government pension said late last year it would exclude investments in Hong Kong, in addition to mainland China, from its $68 billion international fund. China dropped to 19th place on the California State Teachers’ Retirement System ranking of country asset exposure as of May last year. 

More Divestments

Temasek holds stakes in many private and publicly listed companies, including Singapore’s largest bank, port operator, airline and other government-linked corporations. It recorded a net divestment of S$7 billion, its largest since fiscal 2009 during the global financial crisis. 

The firm made S$26 billion of investments during fiscal 2024 and collected S$33 billion from divestments. The latter included about S$10 billion in capital redemptions from Temasek subsidiaries Singapore Airlines Ltd. and Pavilion Energy Pte.

The national carrier redeemed convertible bonds that it issued during the coronavirus pandemic, while the liquefied natural gas trader redeemed preference shares that it had issued to Temasek to bolster its funding during the 2022 fiscal year. Temasek last month said it would sell Pavilion to Shell Plc.

Temasek’s pace of net investments has been in decline since 2022. That year, Sipahimalani had flagged that it was adopting a cautious outlook for deals amid rising interest rates and worsening geopolitics.

The percentage of its investments in unlisted assets fell slightly to 52%, with the firm saying its net portfolio value would’ve been S$420 billion if such holdings were valued on a mark-to-market basis. That compares with S$411 billion a year ago. 

Those unlisted assets include real estate manager Mapletree Investments Pte. and Singapore Power Ltd. Temasek’s overseas investments include China’s Ant Group Co., and positions in private equity and credit funds managed by KKR & Co., TPG Inc. and others. 

Performance Metrics

While Temasek’s one-year total shareholder return severely lagged stock benchmarks like the S&P 500 and Nikkei 225, which rose by 28% and 44% respectively during the company’s 2024 fiscal year, it beat the Hang Seng and Straits Times indexes.

Temasek International deputy CEO Chia Song Hwee defended the portfolio’s performance over longer periods, and said the key was that it could produce long-term steady returns in a resilient way.

“We don’t look at yearly performance — we look at 10 and 20 years as an indication of how we are doing,” Chia said. “Our portfolio construction is nowhere like the index or the Canadian pension funds or GIC for that matter.”

Even so, with Temasek’s 20-year total shareholder return sitting at a four-year low of 7%, he acknowledged that employees at the state-owned investor were not enjoying the stellar payouts seen at some of its portfolio companies.

“I can categorically say that the total compensation has been reduced year-on-year,” Chia said.

Temasek posted a group net profit — which includes the earnings of its operating subsidiaries — of S$5.4 billion, compared to a S$7.3 billion loss in the prior period.

China Weakness

 

Temasek has been a China believer for decades. One of its earliest overseas offices was opened in Beijing in 2004, just as Ho Ching, the wife of former Singapore Prime Minister Lee Hsien Loong, became chief executive officer of the state investment firm. A Shanghai outpost launched soon after in 2005.

Stakes in old-line companies like Bank of China Ltd. were eventually followed by investments in internet giants Alibaba Group Holding Ltd. and Meituan as the economy flourished. Temasek’s real estate subsidiaries also built malls and hotels across major cities, all of which boosted returns.

But the economic turmoil wrought by Covid-19, along with crackdowns on the technology, housing and education sectors have damaged consumer confidence and battered investors. In the year through March 31, China’s CSI 300 Index fell 13%, while Hong Kong’s Hang Seng Index plummeted 19%.

While the firm made some divestments from the country in the past fiscal year, Png Chin Yee, Temasek International’s chief financial officer, said the drop in its assets was driven by market declines. 

“At the same time we are also continuing to invest in new areas that we think will benefit from the structural shift that’s going on in China,” she added.

Sectors singled out by Temasek’s executives as being part of a “new phase” of China deals included electric vehicles makers and biotech companies. Among Temasek’s investee companies in those markets, electric vehicle maker BYD Co. is confronting the prospect of sectoral tariffs around the world while WuXi Biologics Cayman Inc. and sister firm WuXi AppTec Co. have seen share prices plummet due to possible US restrictions.

But they said investments would be focused on specific firms and projects in those spaces that were relatively safe from geopolitics, such as new drug discovery businesses.

“We are not exiting China and not advising our portfolio companies that they should exit China,” Chia said.