Temasek continues to look for opportunities in China

Temasek Holdings will be looking for opportunities in China by looking at the solution to the problems as China pushes forward its reforms, the Singapore sovereign wealth fund said on Thursday.

"With the reforms that are coming, we believe that there will be more opening up," said Chia Song Hwee, head of investment group and co-head of China operations, at a press conference.

He cited the reform of the State-owned enterprises in China as an example, saying that it is expected to expand the base of invested stakeholders if it really takes place.

"We are looking at it as an opportunity to build on the portfolio rather than shrinking it," he said.

Record portfolio value

Temasek Holdings' portfolio value increased by 8.6 percent year-on-year to a record S$215 billion ($173 billion) as of March 31, 2013.

The total shareholder return (TSR), which is the key measure of its performance, was 8.86 percent for the financial year. The three-year TSR was 4.94 percent. Ten-year TSR was 13 percent, and the TSR since its inception was 16 percent.

Its net profit was down 0.9 percent at S$10.6 billion. The higher contribution from portfolio returns offset lower contributions from its portfolio companies.

Chief Executive Officer Ho Ching said that the company is almost entirely invested in equities, leading to a lot more year-on-year volatility in the gauge of its performance.

"We are prepared to ride through the large mark-to-market volatility on our portfolio value, because a portfolio of mostly equities also means we expect higher returns over the long-term from our portfolio," she said in a statement.

Energy Sector

Temasek invested a total of S$20 billion and divested S$13 billion in the last financial year, leading to a net investment of $7 billion.

About 4 billion of net investments were made in the energy and resources sector and in North America and Europe, where Temasek's new investments included significant interest in the energy and resources sector, too.

It also established several investment platforms, including Pavilion Energy which has an initial authorized capital of S$1 and aims to capitalize on the growing demand for clean energy, particularly the liquefied natural gas, as the regional economy continues to transform and urbanize.

Financial services accounted for 31 percent of its portfolio based on underlying assets, remaining the largest exposure by sector, followed by telecommunications, media and technology at 24 percent and transportation and industrials at 20 percent.

Life sciences, consumer and real estate accounted for 12 percent of its portfolio, and energy and resources 6 percent.

Its underlying portfolio exposure to Asia was 71 percent, including 30 percent for Singapore. It exposure in North America and Europe rose to 12 percent from 11 percent. Latin America exposure rose to 2 percent from 1 percent.

Chinese banks

Its underlying exposure to China was 23 percent, down from 24 percent a year earlier, though it continue to rise in terms of the value of the assets.

Chia said the sovereign wealth fund expects the United States economy to continue growing, albeit at a slowed pace. The contagion risks in the Eurozone is perceived to be less than it once was, but the growth will continue to be weak.

"On China, the growth is slowing and there are some risks in the financial system. However, the government has ample policy room to deal with these challenges," he said.

There will be short-term challenges as China pushes forward its reforms, but there will be overall benefits over the longer term, Chia said.

Temasek will be looking for opportunities that may come from China's solution to the challenges it is facing.

"China itself is a very large economy, we have ... started investing outside the banking industry, including insurance. We have also invested in technology companies. We have invested in real estate companies. We have invested in companies that are in the consumer sector," Chia said.

He said Temasek invested in the banks as a proxy to the underlying economy and was not concerned about the liquidity in the banks.

"The banks we invested in are very well capitalized. The loan- to-deposit ratio for those banks that we invested in still has a lot of room as far as creating a buffer for cushioning any negative situation," he said.

Temasek's stake in China Construction Bank, one of the largest lenders in China, accounted for 8 percent of its total portfolio value. Its stake in Singapore Telecommunications accounted for 14 percent, and Standard Chartered 7 percent.