Temasek lifts China exposure by $7.7b, commits to doubling AI bet

Singaporean sovereign wealth fund Temasek saw its exposure to China surge by S$10 billion ($7.7 billion) in the last reporting period, as the investor bets on long-term restructuring of the world’s second-largest economy to be led by innovation and consumption.

Over a decade, its investments in China have grown by S$24 billion ($18 billion), according to Temasek’s latest annual results. But despite that spike in absolute dollar terms, the country’s percentage in the portfolio is still at a decade low, dipping slightly to 17 per cent at the end of March 2026 compared to 18 per cent in 2025.

“We remain committed to investing in China, and continue to invest in the promising areas,” said Temasek Holdings chief executive Dilhan Pillay in a media briefing, adding that valuations have rebounded since 2024.

Temasek will increase its allocation to “tech-enabled” businesses and life sciences in China, rooted in the belief that the country will transition towards an innovation and consumption-led growth.

The investor, now with S$518 billion ($400 billion) in assets under management, counts China’s technology juggernaut Tencent among its top five holdings, as well as insurer Ping An among its top 10 investments in the portfolio.

Strong exports related to AI and technology in China are positive signals to the fund, though reflation “remains uneven and not yet broad-based”. The fund deems further policy easing from the government “unlikely” even though domestic consumption is still lagging.

Markets in China are seeing refreshed signs of life driven by strong opportunities around technology sectors such as AI and robotics, as the nation continues in its quest to establish firmer technological independence in the face of US competition.

In listed equities, the CSI 300 index for mainland blue-chip companies surged by almost 20 per cent in the last year. While modest compared to a dizzying 138 per cent gain on South Korea’s KOSPI index, the China market relies less on the semiconductor frenzy and is less sensitive to US economic indicators compared to some of its Asian peers.

In private equity, total deal value in China surpassed $230 billion in 2025 with strong participation from state-owned enterprises in mega deals over $1 billion, according to a PwC China report.

Exposure to China weighed on Temasek’s return between 2021-2024 and brought the five-year total shareholder return to 4.6 per cent, but the fund said it remained committed to the geographic exposure over the long term.

“Our China portfolio has delivered resilient long-term performance over the past two decades and this track record underpins our continued investments in the market,” the fund said in the annual report.

The biggest regional exposure in its portfolio is Singapore (27 per cent), followed by the US (26 per cent), China, Europe, and Middle East & Africa.

More AI investments

The fund’s enthusiasm for AI is not limited to China but across the global AI value chain. It is a thematic that currently represents 6 per cent of its portfolio but has a target exposure of 10-15 per cent by March 2031.

Its investment approach to AI is four-pronged: the fund will back established AI winners to scale their operations even further; the emerging innovators which have the potential to redefine markets; the core-plus infrastructure exposed to the AI themes such as data centres and energy assets; and the companies which are actively and demonstratively leveraging AI to transform their products and operations.

“This approach balances larger investments in the most significant AI beneficiaries across industries with selective exposure to high-potential AI-native companies,” the fund said.

Being largely an equity investor and having around 40 per cent of its portfolio invested in Singapore companies, Temasek has a soft mandate of improving the operational efficiency and quality of Singaporean enterprises through stewardship.

The adoption of AI will be a critical part of the stewardship principles as the fund said it will engage with boards of Singaporean and global portfolio companies to scale their AI capabilities and capture the upside.

An important platform for Temasek’s efforts around “AI-proofing” its portfolio is Aicadium which the fund set up in 2021 to provide AI engineering capabilities to its portfolio companies. It has aided firms such as industrial testing company Element to develop a new tool, which combines Element’s insights with generative AI to advise medical device companies navigating the FDA approval process.

“Our overall approach to AI-proofing our portfolio is focused on both near-term execution progress and longer-term value uplift to ensure that our portfolio companies are not only adopting AI today but building the foundations to sustain and scale its impact over time.”

Elsewhere, core-plus infrastructure will increase from the current 1 per cent to a target of 5 per cent by 2031, and private credit from 2 per cent to a target of 5 per cent.

In 2024, a standalone private credit platform called Aranda Principal Strategies was carved out of Temasek’s in-house credit team. It now manages a S$13 billion ($10 billion) portfolio of Temasek’s funds and direct investments. 

“We aim to increase our private credit… to benefit from recurring cash yield, diversify our predominantly equity portfolio, and gain insights from the credit markets for our equities exposure,” the fund said.

“We will stay watchful of valuations and risks (macro, credit, and portfolio), and remain ready to invest through dislocations when opportunities are compelling.”