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Singapore’s state-backed fund Temasek warned that heavy investments in the world’s second-largest economy were hurting its performance, saying it would prioritise investments in the United States and be “cautious” about China.
Singapore exchange Temasek, one of the world’s largest state-owned investment groups, said on Tuesday the value of its portfolio rose just 2 percent in the year to March to S$389 billion (US$288 billion).
Those figures fall short of the S&P 500’s 28% gain over the same period, but they’re an improvement from last year, when the index fell 5% for its worst return since 2016.
Temasek said in its annual report that growth from investments in the United States and India was “offset by weakness in China’s capital markets,” over the same period, when the MSCI China Index fell 19%.
China is Temasek’s third-largest market after Singapore and the Americas, and 19% of its portfolio is China-related. The group has been one of the big beneficiaries of China’s growth over the past two decades, investing in tech giants Tencent and Alibaba and e-commerce group Meituan.
“We expect consumer confidence to recover in China and spending to pick up,” Temasek Deputy Chief Executive Officer Chea Song Hui told the Financial Times in an interview.
He said U.S.-China tensions have changed his investment policy: “In the U.S., we try to invest in companies that are not dependent on imports from China. In China, we invest in companies that are not dependent on exports to the U.S.”
Cheah also sounded cautious about investing in artificial intelligence, saying Temasek was “in no rush” to throw money at the AI ​​boom and warned against “hype” in the industry.
He said the state-owned company has no plans to invest directly in OpenAI, but added that it “wouldn’t be surprising” if it got involved with the company through an investment in a venture capital fund. The Financial Times reported in March that Temasek was in talks to invest in OpenAI.
Cheah said Temasek’s approach to early-stage AI startups will be “to be much more agile and invest through a VC fund that will build a portfolio around that space, and then based on what we learn from there, we will probably make direct investments.”
Temasek said last year it was “disappointed” with its $275 million investment in the failed crypto exchange FTX after the company collapsed, forcing it to write off its holdings, sparking an unusual backlash from investors.
“Whenever there is a huge amount of capital flowing into any sector, we need to be careful,” Chia told a news conference, citing “AI hype” and rapid growth in private credit as two areas of enthusiasm.
Temasek said the United States would remain “our nation’s capital’s largest investment destination” outside Singapore as global investors seek to reduce investments in China amid slowing growth and rising geopolitical tensions, and to step up their focus on beneficiaries India, Japan and Southeast Asia.
Temasek praised the performance of London-based Standard Chartered Bank, whose shares it owns, even though Chief Executive Bill Winters called the stock “abysmal” in February. Temasek is Standard Chartered’s largest shareholder.
“I think our operational performance has actually improved quite a bit over the last three years,” said Connie Chan, Temasek’s head of financial services.
Temasek has shifted from public equities to private markets over the years, increasing its allocation to unlisted assets from 20% in 2004 to 52% of its portfolio as of March.
The firm benefited from the private equity boom, but executives have warned that rising interest rates are hurting its debt-heavy business and could cut into fund revenues.
“Low interest rates and high leverage for acquisitions drove some of the gains in the private equity space,” said Alpin Mehta, head of real estate and deputy head of private equity fund investments at Temasek.
“But even if you strip that away, I think the returns are still pretty attractive.”
