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(Bloomberg) — Singapore state-owned investor Temasek Holdings Pte’s bets in China have soured further, as the US and India played a bigger role in generating returns.

The investment company on Tuesday reported a modest total shareholder return of 1.6% for the year ended March 31. It said China’s capital markets slump caused valuations of its assets in the country to decline, which offset its better returns from other markets. 

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The performance was an improvement on Temasek’s one-year return in fiscal 2023, which was a 5.07% drop. The firm’s net portfolio value reached S$389 billion ($288 billion) as of March, up from S$382 billion a year earlier.

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 been overtaken by those in the Americas for the first time in at least a decade. China accounted for 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 performance 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.

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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. 

“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. 

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.

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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., 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 indexes 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 Index.

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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.

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.

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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 most of the drop in the firm’s China positions was the result of market-value 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.

—With assistance from Haslinda Amin.

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