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Why Is Temasek So Massively Overexposed to Chinese Regulatory and Market Risk?

The last few days have seen a savage sell-off in Chinese tech stocks that has wiped hundreds of billions of dollars off their market capitalisation. The Hang Seng Technology Index has fallen some 24% since the date of Temasek’s year end valuation and by 43% from its peak. While there is no transparent market in pre-IPO and unlisted Chinese stocks the rout in these has been if anything greater. The last couple of days have seen the bubble bursting in the online education sector, in which, according to Bloomberg, both Temasek and GIC have been big investors. The Chinese authorities have issued new regulations barring for-profit companies and banning foreign capital from the sector, effectively wiping out their investment. As neither of our Sovereign Wealth Funds publish detailed breakdowns of their portfolios, it is impossible to know how much has been lost but it is sure to run into the billions.

The ostensible reasons for the Chinese crackdown on the tech sector are curbing monopoly power and the ability to discriminate against outside vendors in favour of their own companies and protecting consumers against fraud and misuse of their personal data. In the online education sector the reason given is to reduce pressure on parents to spend more on online tuition and thus indirectly boost the birth rate, a major priority for Chinese leaders.

Curbing the monopoly power of Big Tech strikes a chord with many Democrats and also Republicans in the US where curbing the dominance of big tech and its monopoly power is seen as a major priority and while the benefits to the consumer might prove elusive it is sold on the basis of promoting innovation. However in the US the Democratic administration has to contend with its small majority in Congress and the courts, where a Federal judge recently threw out an anti monopoly suit brought by several US states. Reining in big tech is a lot easier in China which has no rule of law and no real property rights. There is no requirement to seek democratic approval with the antitrust agencies functioning as investigator, prosecutor and judge rolled into one. However the real reason for the Chinese crackdown has more toCurbing the power of China’s tech billionaires is more about flattening all sources of potential opposition to Xi and ensuring that no new personality cults develop around people like Jack Ma that could threaten Xi’s rule.

The sell off in China is particularly ironic because just two weeks ago Temasek published its annual report accompanied by glowing articles in the state media and friendly (read sycophantic) foreign financial media like Bloomberg and the Financial Times with headlines like “Temasek posts best shareholder returns in 11 years.” Even without taking account of the sell-off since the balance sheet date, the historic 24.5% return in the year to 31 March 2021 is not as impressive as it appears when we remember that a year before that markets had fallen sharply at the beginning of the pandemic in March 2020. Then later in the year progress on developing vaccines and massive Government aid packages caused a gigantic relief rally. In fact between 31 March 2020 and 31 March 2021 the S&P 500 index rose twice as fast, by 53.7%, while the MSCI World Index rose by 52.0%. The Shanghai Composite Index only rose by 25% while the Hang Seng Technology Index.

Anyone who has read my blog knows that I have been scathing in my criticism of Temasek’s management, and in particular of Ho Ching for many years. (See links below to just a few of the articles). The precipitate plunge in the value of Chinese tech stocks reinforces all the doubts that Temasek’s management know what they are doing and in particular why they have put so many eggs in the Chinese basket. After all China only represents about 5% of global stock market capitalisation whereas the US represents over 55%. Temasek’s exposure to China is 27% of the portfolio whereas the whole of the Americas (North and South) is only 20%.

Being so overweight China carries huge political risk and makes Temasek hostage to a Communist Government that is no respecter of rule of law and does not care about foreign investors. On their website Temasek state that one strand of their strategy is betting on a growing middle class in Asia. If it is relying on China to fuel global growth then this strategy is already outdated since it has become clear that under Xi China is focused on becoming self-sufficient, presumably in preparation for conflict with the West. Consumption, and with it import growth have been downgraded which means less growth for the rest of the world unless the US tales up the slack (though to be fair both LHL and the PAP think consumption is an unnecessary evil like the Chinese leadership and that ordinary Singaporeans should consume as little as possible and produce and export as much as possible).

Since these trends have been clear for some time why has Temasek (and GIC along with the rest of the Singapore Government) put so many eggs in the Chinese basket. It probably stems from the PAP’s China-centric mentality, which started with LKY, and belief in China’s unshakeable rise to world dominance. That is the best interpretation. However there may be other more sinister reasons. As I said in my last blog, Why the Greedy Gullibility of Temasek’s General Counsel Should Ring Alarm Bells, if the top management of Temasek can so easily be taken in by a scam that should not have fooled an ordinary retiree, how can Singaporeans have faith that they know what they are doing. How can we be sure that Temasek’s whole portfolio is not full of rotten apples. Instead of giving Singaporeans facts, overpaid, unaccountable and arrogant expatriates like Mukul Chawla are wheeled out to repeat nursery mantras like “Our stance on China remains unchanged in our optimism”

Temasek is clearly not there to maximize returns on Singaporean-owned assets since it would have reduced its over exposure to China (and Singapore which is still nearly a quarter of its portfolio) and put more of its money into the US if that were the case. It started as an instrument of industrial policy to grow Singaporean state-owned companies but that rationale no longer exists since these companies no longer need state help and in fact are candidates for break up since they rely on monopolies and overcharging Singaporeans. Many of them, like DBS, have expat managers while others, like Keppel, Sembawang Marine and Singapore Airlines have workforces that are either largely or substantially foreign. In most cases Temasek owns only a minority stake though seems to exert a degree of control much greater than its They should be fully privatized. As a first step Temasek should be split in two, with a Singaporean arm and a foreign investment portfolio. Ultimately, as I have advocated many times in the past, Temasek and GIC should be owned directly by Singaporeans through the issue of shares which would be listed, This would provide transparency and accountability which seems sadly lacking at the moment.

Clearly the management of Temasek do not know what they are doing which is ironic because I do not know what they are doing either. The muddled strategy, which can be used to justify any investment, opacity and the management’s lack of accountability for mistakes suits LHL and his wife as it provides them with a vehicle for his wife and family to use to promote their interests. They can pay sycophants like its expatriate management and buy loyalty globally. It is also provides a route for LHL to channel state resources secretly without any credible oversight to himself and his wife since Ho Ching’s salary, likely to be in the tens if not hundreds of millions of dollars. Since LHL does not have to tell Singaporeans what assets he owns, Temasek’s clout as a large investor might provide profitable opportunities for him and his wife to invest on a favorable basis in unlisted companies together with Temasek. Singaporeans will not be told about the losses it has suffered in the rout in Chinese technology stocks. The only certainty is that Temasek’s existence provides little or no benefit to Singaporeans, It is high time that Temasek (and GIC) were made properly accountable to the people starting with the salaries and job performances of its top management and how much money Ho Ching has been paid and will still have invested at Temasek after she leaves in October.

 

Kenneth Jeyaretnam

 

About the author: I’m a Singaporean economist who became an opposition activist. I blog to provide an alternative to the porkies that the Pinkies tell. It just so happens that my alternative is the truth. That’s why I’ve never been sued in any civil or criminal court no matter how hard hitting my criticism. I’m quoted and interviewed and asked to speak across the world but largely censored in Singapore in an effort to silence my political opinions. The left hate me because they think I split their vote and because I eschew their outmoded economic models. Models that don’t work. The Right and the Conservatives hate me because I’m a liberal. I’m not sure what the middle think of me. I don’t think there are more than a handful of people in the middle, here in Singapore. I’m a Singaporean born and bred, dual heritage, my parents Singaporean established here before the State of Singapore was created. I’m not Eurasian. I read economics at Cambridge and could be broadly described as from the Keynesian school but I believe in interventions. I was formerly a successful hedge fund manager. After economics and politics my greatest interests are history, film and Makan. I run but I run so I can eat like a Singaporean.

 

 

 

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READER COMMENTS BELOW

16 Responses to “Why Is Temasek So Massively Overexposed to Chinese Regulatory and Market Risk?”

  • Wasteful Temasek:

    Wasting our money distributing stuffs that many don’t want. That’s our money down the drain.

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  • oxygen:

    GOOD SUGGESTION, I concur.

    KJ:Temasek and GIC should be owned directly by Singaporeans through the issue of shares which would be listed, This would provide transparency and accountability which seems sadly lacking at the moment.

    After all it is public money they are managing – there must be strong drive for above par market performance, market risks given. So far as I can see, the two SWFs consistently UNDERPERFORMED for more than a decade relative to major US market indices – DJIA, SPX, Nasdaq. That is what fund managers are paid for.

    On portfolio mix of investments choice, I am never a fan of technological absolutism i.e. technology is a ‘sure win” bet when the truth is the opposite. Every century has its “technology breakthroughs” and “wonders” how many wonder wealth that got for its inventors? A few, far more died in incubation and not even seeing still-birth.

    And of those so-called “technological disrupters”, there is in every segment of relevant technology – only ONE WILL DOMINATE AND PROSPER, the rests of tech wonder just die like rotten carcass feeding the maggots of dumb investors.

    IN OTHER WORDS, IT IS EASY TO IDENTIFY TECH DISRUPTERS, MUCH HARDER TO DISCOVER ONE WINNER UNTIL TOO LATE where Johnny-came-lately to the dinner party just in time to do the dishes. Johnny pay high price, high risks and likely to see negative returns on investment. Me thinks the chances of making riches investing in tech is LOWER than race-horse betting on the turf club or Melbourne cup every year.

    The lowest tech sector is natural resources. For the last 12 months, the biggest money is found there.

    From miners to big oil, the great commodity cash machine is back

    https://www.mining.com/web/from-miners-to-big-oil-the-great-commodity-cash-machine-is-back/

    From past reading of TH annual reports, I recall they ventured into commodities space just after the GFC – RIGHT AT THE VERY PEAK of the hype of commodities supercycle – betting on Cheasapeake Energy, Repsol S.A. even 20% (of all things) stake in an offshore Tanzanian gas field – losing their shirt, pants and something else too in natural resources sector. THEY WERE CAUGHT A DECADE TOO LATE.

    Didn’t know if after got badly burnt did they venture again into that natural resources space again. If they didn’t venture into commodities cycle in the last 12 months, THEY WOULD HAVE MISSED THE BOAT YET AGAIN on the upside.

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  • Taleban:

    Reason for the low 24+% increase in asset is Temasek invest in ‘Green companies’.
    Temasek, you are suppose to grow our money. Let United Nations and other countries take care of the envoirnment.

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  • Temusik Patriot:

    Bro J, you will be PERMANENT @TRE not a temp…your brilliant post 4thinkers is a fresh of breadth Air as to the Shit n Farts provided by idiots…for simple folks like fisherman n repent flesh peddlers Jesus said “The TRUTH will set you FREE”…hence the man whi CON by the name of Lie Con You created an illusion like a rainbow and TOLD idiots to go into it and Live The Lie…the con KNOWS that the “TRUTH” will set us the people “FREE”…
    Remain an idiotic sheep n go into the rainbow to find a POT of LKY’s SHIT

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  • Why is our retirement CPF ...?:

    … retirement CPF savings MASSIVELY EXPOSED to the $$$ venture capital exploits of Temasek Holdings and its landslide salary appointments?

    Mana ada checks and balances in “ownself check ownself” demagoguery? And who’s to represent us CPF contributing citizens in ascertaining “due diligence” on the part of the executive corporate chief honcos?

    Will Milo Pre$ident condescend towards the cause of suffering sheeples in Sinchiapor Incorporated? “Chiak Liao Bee” has obtained a heightened and seminal redefinition under this crony regime….

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  • TL Tan:

    Simple: Because Temasek is a long-term shareholder and can afford the short-term volatility. Over the long term, these companies will surely increase in value as their earnings increase. There is also the possibility of buyouts and other strategic shareholder stakes. Ultimately, Temasek is doing the right thing.

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  • Spore jewel:

    Kenneth spore is indeedvhortunate to have a true son of the soil,
    Yr articles are brilliant eye openers ,we are fortunate that u shed a rsy of light where there is darkness and opacity

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  • No Substance yet act Smart:

    Uncle Sam is scratching his head who is this kootoo telling him not to anger the Panda.

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  • oxygen:

    @ TL Tan

    WHEN YOU SPEAKS of “also the POSSIBILITY of buyouts and other strategic shareholder stakes”, you are telling every readers here this hallucination of yours has NEVER MATERIALISED in the past.

    TL Tan: Simple: Because Temasek is a long-term shareholder and can afford the short-term volatility. Over the long term, these companies will surely increase in value as their earnings increase. There is also the possibility of buyouts and other strategic shareholder stakes. Ultimately, Temasek is doing the right thing.

    The KEY catchword is “possibility”. That is to say it is a fantasyland dream till now UNTIL AND UNLESS you can substantiate otherwise now.

    Until then of your invited substantiation, the contrary must be sustained. How could you reasonably claim whilst walking on such watery grounds above that

    TL Tan: Ultimately, Temasek is doing the right thing.

    Did they instead missed this golden opportunity in 2020?

    oxygen: Didn’t know if after got badly burnt did they venture again into that natural resources space again. If they didn’t venture into commodities cycle in the last 12 months, THEY WOULD HAVE MISSED THE BOAT YET AGAIN on the upside.

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  • ah chik:

    Maybe this stock purchases dont be losers like THE S.I.P.?
    Remember some minister-to-be was heading that “project” in Suzhou.
    Stocks at high price levels in China.
    Hopefully,they inch higher or stay up.

    Can never forget they off-load their “ang mo tua kee shares” of too big to fail corps and saw billion$ of deficits?

    All in all,Chinese stocks are still more secure as long as Asia grows post-COVID.

    BETTER THAN LEHMAN BROs???
    Many went broke.
    Who was lead-manager?
    DBS .
    Ut stands for Damn Blardy Stupid!

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  • Soccerbetting2:

    Reported on Straits Times :Quote-”Temasek to distribute free N95, surgical masks in end-August to stop Delta Covid-19 variant

    Under the new exercise, each household will receive 50 medical grade surgical masks and 25 N95 respirator masks.ST PHOTO: LIM YAOHUI

    Ang Qing
    UPDATED2 HOURS AGO
    FACEBOOKWHATSAPP
    SINGAPORE – Another mask distribution exercise is to start this month. And, this time, the Temasek Foundation will hand out free surgical and N95 masks.

    The Delta variant is twice as contagious as the other variants that caused Covid-19 last year, and will require Singapore residents to wear more effective masks to bring down infection numbers, Temasek chief executive Ho Ching said in a Facebook post on Wednesday (Aug 4).

    Noting that each case has an infectivity rate of between five and six people, she said 80 per cent of the population needs to wear “80 per cent effective masks or better” to curb the spread.

    To facilitate this, the Temasek Foundation is working with Capitaland malls and larger supermarkets to distribute masks using SP Group utility bills, she said.

    Under the new exercise, each household will receive 50 medical grade surgical masks and 25 N95 respirator masks.

    Response : Temasex give mask to stop delta variant later this month ? Why evil b**** HC never give earlier ? Now Soth America coming up with “lambda” covid virus ,more deadly ! Pui!And where is my previous post ? Missing ? Pui !

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  • Invest local:

    Best policy is to invest local and build our local companies.
    Learn from Israel.Invest local companies.
    Will give long term benefits to Singapore and build up its people and lives.

    Now only help foreign companies to compete with our local companies. Stupid Policy.Never learn.

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  • No wonder:

    Of course Temasek is doing the right thing. Any person will agree with that! They pay themselves secret salaries and bonuses. That’s the right thing any management in a capitalistic environment will do. Anyone who disagrees has to be a commie.

    oxygen: Until then of your invited substantiation, the contrary must be sustained. How could you reasonably claim whilst walking on such watery grounds above that

    TL Tan: Ultimately, Temasek is doing the right thing.

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  • MarBowling:

    Folks,

    The 50 medical grade surgical masks and the 25 N95 respirator masks are NOT FREE, period. Shim using taxpayers hard earned money to purchase them under the Holee Name of Tombmasek Foundation!

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  • Sinovac is SAFE:

    Hello Author Kenneth Jeyaretnam

    When you going win back Anson district? You don’t understand Singaporeans characteristic, as politician this is fatal. Singaporeans ancestors come from China. Singapore culture, language, thinking, religion and foods all can trace back to China. So this mean China is our motherland. Temasek as Singapore national investor invest money in motherland, what wrong? China laws & rules will take care Singapore money inside there. Is so safe & so profiting! Stock market go up & go down everyday, America stock market also go up and down everyday. No stock market is better than China stock market. When Temasek make money, Singaporeans also benefit because government give more rebates & cash vouchers to citizens. All this money actually & effectively & really come from China which is Singapore motherland. For you blame Singapore invest China too much, you lose respects & loyal of Singaporeans voters! You hurt & insulting Singaporeans feeling & pride! From now you can stop join singapore next election because nobody will vote you. You can stop dream win back Anson election district because you gravely insult the motherland of Anson voters!

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  • oxygen:

    @ Sinovac is SAFE

    REALLY or fiction fairytale?

    Sinovac is SAFE: No stock market is better than China stock market.

    How about these realities.

    Chinese companies are leading the global IPO rush amid a ‘flight from uncertainty’

    https://www.cnbc.com/2020/10/27/chinese-companies-are-leading-the-global-ipo-rush-amid-a-flight-from-uncertainty.html

    and this

    A ‘tidal wave’ of Chinese companies rush into the red-hot IPO market in the U.S.

    https://www.cnbc.com/2021/04/28/a-tidal-wave-of-chinese-companies-rush-into-the-red-hot-ipo-market-in-the-us.html

    TIONGLAND STOCK MARKET SO HOT, how come Ah Tiong entities all rushing to list on the NY stock exchange instead of the Shanghai stock exchange or Shenzhen stock exchange?

    Iconic irony of cognitive dissonance there.

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