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Singapore’s sovereign wealth fund Temasek said it would favor US investments and be “cautious” on China after warning that its heavy exposure to the world’s second-largest economy had hit its performance.
Temasek, one of the world’s biggest sovereign wealth groups, said on Tuesday the value of its portfolio rose just 2 percent to S$389 billion ($288 billion) in the year to March.
While those numbers trailed the S&P 500’s 28 percent gain over the same period, the increase was an improvement over last year, when it fell 5 percent in its worst return since 2016.
Growth from investments in the US and India was “offset by the underperformance of Chinese capital markets”, Temasek said in its annual report. The MSCI China index fell 19 percent over the same period.
China is Temasek’s third largest market after Singapore and the Americas, with 19 percent of its portfolio tied to the country. The group has been one of the big beneficiaries of China’s growth over the past two decades, with bets on tech giants Tencent and Alibaba and e-commerce group Meituan.
“We would like to see consumer confidence return and spending grow,” Chia Song Hwee, Temasek’s deputy chief executive in China, told the Financial Times.
He said Sino-US tensions had changed its approach. “In the US, we try to invest in companies that do not rely on imports from China. And in China we invest in companies that don’t rely on exporting to the US.”
Chia also cautiously noted investment in artificial intelligence. He said Temasek was “in no rush” to put money into the AI ​​boom and warned against “hype” in the industry.
The state-backed group had no plans to invest in OpenAI directly, he said, but added that people “shouldn’t be surprised” if it got exposure to the company through investments in venture capital funds. Temasek was in talks to invest in OpenAI, the FT reported in March.
Chia said Temasek’s approach to early-stage AI start-ups is “to invest through venture capital funds, which are much more nimble and build a portfolio around the space”, adding: “We’ll probably do direct investment based on what we learn from that.” “
Temasek said last year that it was “disappointed” with its $275 million bet on failed cryptocurrency exchange FTX. After the company collapsed, it was forced to write down its stake, prompting a rare reaction from investors.
“When there’s a lot of capital coming into any area, you have to be cautious,” Chia told a news conference, citing the “AI hype” and the private credit boom as two areas of exuberance.
Temasek said the US would continue to be “our capital’s biggest destination” outside of Singapore. It said it would increase its focus on India, Japan and Southeast Asia, markets that have benefited as global investors try to limit their exposure to China as growth slows and geopolitical tensions rise.
Temasek praised London-based bank Standard Chartered’s performance despite CEO Bill Winters calling its share price “crap” in February. Temasek is the lender’s largest shareholder.
“I think the operating performance has really improved quite significantly over the last three years,” said Connie Chan, Temasek’s head of financial services.
Temasek has moved from public stocks to private markets over the years, increasing its allocation to unlisted assets to 52 percent of its portfolio as of March from 20 percent in 2004.
While it has benefited from the private equity boom, managers have warned that funds face the prospect of lower returns as rising interest rates hit its debt-fueled model.
“Low interest rates with a lot of leverage for acquisitions has contributed to some of the returns in private equity,” said Alpin Mehta, director of real estate and deputy head of private equity investments at Temasek.
“But even if you had to take it and strip it down, I think the yields are still fairly attractive.”