By Saeed Azhar and Anshuman Daga
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 ($19.27 billion) into new investments in the financial year ending March, a 20 percent 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 percent this year, as a recovery takes hold after a series of government stimulus measures. A recent Reuters poll forecast economic growth either stabilised or edged up in the second quarter, reinforcing the view that authorities have successfully arrested a cooldown.
Diversifying investments
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 percent stake in China Construction Bank and a 2 percent stake in Industrial and Commercial Bank of China. It also has holdings in other banks, including a stake of just under 18 percent in British lender Standard Chartered and took a 1.1 percent 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 percent to a record S$223 billion ($179 billion) in the financial year, a slower pace from the 8.6 percent growth in the previous year.
It posted a total shareholder return of 1.5 percent annualised in Singapore dollar terms up to March 2014, versus 8.86 percent return in the previous year.