Temasek remains optimistic about China investments despite US-China tensions

Temasek's investments in China revolve around domestic consumption.

Karen Lui | July 13, 2021, 06:44 PM

Follow us on Telegram for the latest updates:

Despite regulatory crackdown on two of its largest portfolio companies in China, Temasek Holdings remains optimistic about investment opportunities in the country.

Optimistic on China's investment prospects

Speaking at the Singapore state investment arm's annual review on Tuesday, July 13, Mukul Chawla, joint head for North America, said Temasek continues to look at growth opportunities in China, and that their stance on the country "remains unchanged in [their] optimism".

Chawla, who is also joint head for telecommunications, media and technology, said that regulatory changes are not unique to China, and asserted the need for Temasek and their portfolio companies to remain compliant with government regulations.

Temasek has remained consistent on its optimism towards investment prospects in China, with CEO Dilhan Pillay Sandrasegara previously saying the company is "still very positive on the long-term trajectory" of the country, Bloomberg reported.

These comments were made in the wake of the suspension of an initial public offering made by Alibaba's fintech arm, Ant Group.

Authorities then announced new regulations that are expected to put the company under even greater scrutiny by the central bank and the banking regulator.

Most recently, Chinese authorities started a probe into ride-hailing company Didi two days after the firm's initial public offering.

China (27 per cent) and Singapore (24 per cent) remain the two largest countries of exposure in Temasek's portfolio as of March 31, while the Americas (20 per cent), Europe, Middle East and Africa (12 per cent) follow after.

The region with the largest share of new investments the past year was the Americas, followed by Singapore and China.

New office set up in Shenzhen and Brussels

Fock Wai Hoong, Temasek's International Managing Director, further said that the firm is optimistic about economic growth this year and next.

Broad-based economic activity is expected to be stimulated and sustained by vaccination programmes across the U.S., Europe, and China, he said, adding that the manufacturing, financial and technology sectors remain resilient in Singapore.

As a sign of its optimism, the state-backed investor has set up a new office in Shenzhen last year, which will tap on growth opportunities in the Greater Bay Area, and complement the firm's existing presence in Beijing and Shanghai.

Along with a new office in Belgium as well, Temasek's global footprint has risen to 13 offices in nine countries, including regional offices.

U.S.-China tensions minimal impact on investments in China

Similarly, the investment firm remains optimistic on China's prospects despite the country's ongoing tensions with the U.S.

In its press release issued on July 13, Temasek noted that potential geopolitical reverberations due to rising tensions between the two major powers have resulted in uncertainty.

Nagi Hamiyeh, joint head of Temasek's investment group and Temasek International's head of portfolio development said the impact on their China portfolio would be minimum.

He explained that this is because their investments in China revolve around domestic consumption, and do not rely on import or export factors.

In contrast, Temasek's investments in the U.S. are focused on companies with international footprint, as well as the potential to grow internationally.

Nevertheless, Hamiyeh said they will continue to monitor the situation as both China and the U.S. are important investment destinations that they will continue investing in.

Underlying tensions between the U.S. and China remain, with the U.S. imposing sanctions on China over alleged Xinjiang human rights abuses, even if tensions have abated slightly and relations become less volatile under U.S. President Joe Biden.

Covid-19 support and recovery

As for prospects towards the global economy, Temasek expects stable recovery, although they foresee the pace of recovery to be uneven across countries with the emergence of new peaks of infections and slow vaccination rates.

Boosted by fiscal stimulus, resilient private consumption, and a return to pre-Covid normalcy due to its vaccination pace, strong growth is expected in the U.S.

As for China, its economy remains ahead of others during the recovery cycle, Temasek said, adding that the Chinese government continues to shift its focus to sustainable long-term growth.

Top image via Brenda Tong/Unsplash