Investor Profile

Temasek drops exposure to China on pandemic and property headwinds

Temasek, Singapore’s state-owned investment company, scaled back investment in China in favour of buying local assets in its last financial year.

According to its 2022 Review the giant fund’s allocation to Singapore-based assets now comprises 27 per cent of the S$403 billion portfolio, up from 24 per cent a year earlier. Meanwhile exposure to China has dropped to 22 per cent from 27 per cent in the same period.

“China may face challenges achieving its 2022 growth target of 5.5 per cent given weakness in its growth so far this year,” said Rohit Sipahimalani, Temasek’s chief investment officer.

“Policy agencies are likely to maintain a supportive stance to buffer headwinds from soft property activity and pandemic restrictions.”

The last time Singapore holdings took the top ranking in Temasek’s portfolio was in 2018 when it accounted for 27 per cent.

Temasek has been investing in China for 20 years and for the last decade China has been its best performing market, offering investment opportunities that fit well with its key investment themes around Digitisation, Sustainable Living, Future of Consumption, and Longer Lifespans which together now amount to around 30 per cent of the portfolio compared to just 13 per cent in 2016.

For example, despite the impact of the pandemic keeping much of China closed and US China decoupling trends continuing to worry investors, Temasek’s recent investments in China include a focus on new consumption patterns, sustainability and innovation. Like VX Logistics, a dry warehouse and cold chain developer and operator; Shanghai Hydrogen Propulsion Technology, a hydrogen fuel cell developer and Whale Technologies, a digital marketing tech company.

Temasek’s giant portfolio rose S$22 billion to S$403 billion for the financial year ended 31 March 2022 returning 5.81 per cent compared to 24.5 per cent last year. The fund’s TSR since inception in 1974 was an annualised 14 per cent compounded over 48 years, while 20-year and 10-year TSRs were 8 per cent and 7 per cent compounded annually, respectively.

Developed economy bias

Despite the portfolio remaining anchored in Asia (63 per cent) Temasek continues to grow its portfolio exposure in the Americas (21 per cent) and in Europe, Middle East and Africa (12 per cent), in line with emerging trends and opportunities. Underlying exposure to developed economies, including Singapore, North America, Europe, Australia and New Zealand, increased to 65 per cent compared to 55 per cent in 2011.

Still, Sipahimalani sounded a note of caution ahead. Flagging slowing growth prospects and the uncertain outlook ahead he said: “Taking into account the reasonable likelihood of a recession in developed markets over the next year, we maintain a cautious investment stance while staying focused on constructing a resilient portfolio underpinned by the structural trends we have identified.”

During the year, Temasek invested S$61 billion and divested S$37 billion.

Unlisted allocation

He said that the portfolio remains liquid, even as holdings in unlisted assets have grown steadily over the years – up around four times from S$53 billion a decade ago to S$210 billion (52 per cent of AUM) today.

Over the last decade, the unlisted portfolio has generated returns of over 10 per cent per annum comprising returns earned when unlisted investments are listed or sold, as well as from the strong performance of the underlying companies like steady dividends from Temasek’s stake in companies including Mapletree, SP Group and PSA.

Unlisted assets include investments in unlisted Singapore companies (36 per cent); other private companies including early stage companies (26 per cent); Temasek’s asset management businesses (20 per cent) and private equity and credit funds (18 per cent).

Early stage companies give valuable insights into innovation in technology and business models, enabling the investor to better assess future opportunities and segments, as well as gain a deeper understanding of potential implications for the broader portfolio. Early stage companies make up less than 10 per cent of the unlisted portfolio.

Investments in unlisted assets are subject to the same investment discipline as other investments, centred around intrinsic value and Temasek’s risk-return framework. The investor applies an illiquidity risk premium, and for early stage investments, adds a venture risk premium to the risk-adjusted cost of capital test applied as part of the investment assessment.


Elsewhere the Review stated how Temasek is  progressing on its target to reduce net carbon emissions of the portfolio to half the 2010 levels by 2030 as it aims for net zero carbon emissions by 2050.

Temasek internalises the cost of carbon in its investment decision making. An internal carbon price of US$42 per tonne of carbon dioxide equivalent has been lifted to US$50 this year. “We expect to increase this price progressively to US$100 by the end of this decade. A portion of our staff’s long term incentives will be aligned with our 10-year carbon targets,” the Review concludes.

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