SINGAPORE - Singapore sovereign investor Temasek Holdings wants to increase its holdings in China's financial services and technology sectors, banking on the long-term growth prospects of the world's second largest economy.
Temasek Holdings Pte Ltd, which has two-thirds of its assets in Singapore, China and Australia, poured S$24 billion into new investments in the financial year ending March, a 20 per cent increase from the previous year and the largest amount since the 2008 global financial crisis.
The increase coincided with slower growth in its portfolio, which was hurt by weakness in Asian stocks and banks such as Standard Chartered. "China's economic reforms will present opportunities for long-term investors such as Temasek," China head Wu Yibing told reporters as the state investor outlined its investment strategy and outlook for the current financial year.
He said Temasek would continue to invest in Chinese banks, which he called a "good proxy for long term growth for the Chinese economy". Temasek is ranked as the world's tenth biggest state-backed fund by the Sovereign Wealth Fund Institute.
In addition to banks, Wu said the Temasek was interested in China's healthcare, resources and technology sectors, especially mobile Internet. The state investor owns a stake in Chinese e-commerce giant Alibaba Group Holding Ltd.
The World Bank expects China's economy to grow 7.6 per cent this year, as a recovery takes hold after a series of government stimulus measures. A recent Reuters poll forecast economic growth either stablised or edged up in the second-quarter, reinforcing the view that authorities have successfully arrested a cooldown.
Temasek has faced criticism in recent years for its large exposure to the financial services sector, which accounted for a third of its portfolio last year.
Some analysts, however, said they expect its investments in China's financial sector to pay off in the long-term. "They are some of the cheapest banks in the world and so much of what is going on has been discounted," said Hong Kong-based equity research analyst Paul Schulte, who has more than 20 years of experience in investment banks and hedge funds.
Chinese banks are facing a spike in bad debts triggered by the slowdown in the economy and rising competition from online financial service providers. Interest margins, which helped prop up profits, are expected to fall in the long run.
Temasek owns a 6 per cent stake in China Construction Bank and a 2 per cent stake in Industrial and Commercial Bank of China. It also has holdings in other banks, including a stake of just under 18 per cent in British lender Standard Chartered and took a 1.1 per cent stake in Lloyd Banking Group last financial year.
Temasek has also been increasing investments in private companies to capitalise on future listing of these firms and to move away from financial services.
In March, Temasek bought a stake in Hong Kong-based, unlisted health retailer A.S. Watson. A Temasek-led group also took control of commodity trader Olam.
Temasek also invested almost $1 billion in biotechnology firm Gilead Sciences and $500 million in lab equipment provider Thermo Fisher Scientific last year.
But its performance has often lagged some of its own internal metrics in recent years as it focused on listed stocks, which are exposed to swings in stock markets.
Temasek's report showed that its so-called Wealth Added, which it uses to determine the bonus pool, fell below its cost of capital for the fifth time in the last seven financial years Its portfolio size rose by 3.72 per cent to a record S$223 billion ($179 billion) in the financial year, a slower pace from the 8.6 per cent growth in the previous year.
It posted a total shareholder return of 1.5 per cent annualised in Singapore dollar terms up to March 2014, versus 8.86 per cent return in the previous year.