Guest Blog: Temasek’s Bet on Emerging Markets

Victoria Barbary

With the Temasek Annual Review for the 2010-11 due out soon, I thought it would be interesting to use our database of direct, publicly reported investments by SWFs, finalised up to December 2010 and our preliminary data for 2011 to give a preview of what we should expect to see. The data, presented in the charts below, shows three distinct trends.

  1. China: Temasek is clearly bullish on the Chinese economy. Between April 2010 and the end of March 2011, Temasek made 11 publicly reported investments in Chinese companies, with a reported value of nearly $2 billion. This represents 42 per cent of their total reported expenditure for the year and a third of all their publicly reported direct investments. These investments were in a variety of sectors, but with Temasek’s purchase of $1.5 billion of China Construction Bank stock from Bank of America in 2010, on top of their existing holdings in that institution and $300 million of shares in the Agricultural Bank of China’s IPO last July, they have clearly identified Chinese financial services (and indeed, Asian financial services in general) as a growth sector. The remainder of their Chinese investments are in the booming infrastructure sector; their investments were in the transport, communications, real estate and energy sectors. The fund’s single investment in real estate, however, suggests that Temasek (directly at least) has shied away from being sucked into the Chinese real estate bubble that has been widely touted in the media.
  2. Frontier Markets: Temasek, more than any of the other funds we follow, is spreading its wings into a wide range of emerging and frontier markets, shunning developed markets except where they can provide it with exposure to commodities. This follows a trend I first spotted in 2009, but has become even more pronounced. As the charts below show, Temasek invested on nearly every continent, with the notable exception of Europe. In particular, along with its fellow Singaporean Fund, GIC, Temasek has been opening up the Indian market for SWFs. But this isn’t where stops: it has invested in a range of markets in Asia, including Pakistan. Latin America, a relatively new market for SWFs, has also been a target for Temasek, as has South Africa. For a fund that has traditionally invested substantially at home, in 2010 it invested relatively little in Singapore: only six out of 33 investments we have so far identified.
  3. Commodities: The change in Temasek’s strategy towards investing in commodities has been evident since the debacle over Chip Goodyear’s resignation as CEO designate in 2009. This year continued that trend with the fund investing in hydrocarbons and metals in the Americas and South Africa. But as I demonstrated in our recent SWF annual report, Temasek has invested throughout the energy value chain, with its investment in electricity distribution in India, for example.

So what does this tell us? I would have suggested before today that Temasek was rather overweight in Chinese banks, but with its sale of a substantial divestment of its shares in China Construction Bank and Bank of China suggests that this imbalance is being rectified. Nevertheless, with such a strong play towards China, Temasek needs to be careful that inflation doesn’t wipe out the gains that it seeks to make in this market. Finally, as it sells out of its domestic holdings, it sees the future in emerging markets, and that the West is yesterday’s news. We’ve known that Temasek has held this opinion for some time, but one hopes that it has robust risk management strategies in place to ensure that this doesn’t backfire in the short to medium term as historically, emerging markets are relatively volatile.


1 Response to “Guest Blog: Temasek’s Bet on Emerging Markets”

  1. 1 VC Independent September 1, 2011 at 8:57 am

    Good to see economic growth going on somewhere in the world, hopefully we can adopt some methods like these to help get the US out of the dismal economic future ahead

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This website is a project of Professor Gordon L. Clark and Dr. Ashby Monk of the School of Geography and the Environment at the University of Oxford. Their research on sovereign wealth funds is funded by the Leverhulme Trust and The Rotman International Centre for Pension Management.

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