Key Insights

• Temasek prioritizes AI in U.S. traditional industries while expanding in India and Japan due to favorable market conditions.
• Cautious on China, Temasek seeks opportunities in domestic-driven sectors like biotech, robotics, and electric vehicles.
• With a portfolio value of SG$420B, Temasek balances listed and unlisted assets, investing SG$26B in tech, financial services, and healthcare.

Singapore’s state investor Temasek has announced that it will continue directing most of its investment capital to the United States, focusing on traditional industries that are early adopters of artificial intelligence. 

Rohit Sipahimalani, Temasek’s chief investment officer, noted that despite the high costs in the U.S. market, the S&P equal weight index is valued below its long-term average at 16 times earnings.

Although Temasek did not disclose specific figures regarding its U.S. investments, the Americas region constitutes 22% of its portfolio. For the fiscal year ending in March, Temasek’s portfolio value increased by nearly 2% to SG$389 billion (US$288 billion). The company also indicated a cautious stance towards the Chinese market due to ongoing structural challenges.

Cautious Approach to the Chinese Market

Temasek has expressed a cautious outlook toward China despite the country’s pro-growth governmental policies aimed at economic recovery. The company pointed out that China’s economy faces structural challenges, including insufficient domestic demand, which could lead to continued economic and inflationary pressures.

Chia Song Hwee, Temasek’s deputy CEO, remarked on the demand-side issues facing China’s economy. He stated that businesses driving or satisfying domestic consumption, particularly in biotech, robotics, electrification, and the electric vehicle value chain, are of interest. 

However, due to geopolitical risks, Temasek prefers companies that can thrive solely within the domestic market without relying heavily on exports.

Expansion into India and Japan

In addition to its focus on the U.S., Temasek has been steadily increasing its exposure to India and looking to invest in Japan. The firm sees India’s large domestic market and the trend of supply chain diversification as key opportunities. Meanwhile, Japan has attracted foreign investor interest due to corporate governance reforms and market surges.

Alpin Mehta, deputy head of private equity investments at Temasek, highlighted that Japan’s corporate scene benefits from structural and cyclical tailwinds. Mehta mentioned that Temasek’s exposure to Japan has increased to 1%, a significant rise from virtually nothing a few years ago. Some of Temasek’s portfolio companies exposed to Japan include Vertex Capital, Capitaland, and Mapletree.

Portfolio Performance and Strategic Shifts

Temasek’s net portfolio value, after marking unlisted assets to market, stood at SG$420 billion, up from SG$411 billion the previous year. The firm’s decision to report unlisted assets at market value aligns with its peers, given that these assets now comprise a majority (52%) of its portfolio, up from 20% in 2004.

Sipahimalani explained that Temasek has developed a competitive edge in private investments due to better access and its ability to collaborate effectively with companies. Although there is no specific target ratio for unlisted versus listed assets, the firm aims to maintain a balance to ensure liquidity.

For the 2024 financial year, Temasek invested SG$26 billion in sectors such as technology, financial services, and healthcare. Most of this capital was allocated outside Singapore, with the U.S. receiving the largest share, followed by India and Europe. Temasek also sees opportunities in Europe, particularly in the green energy transition.

Divestment and Shareholder Returns

During the financial year, Temasek divested SG$33 billion, resulting in a net divestment of SG$7 billion, compared to a net investment of SG$4 billion the previous year. Despite a modest one-year total shareholder return of 1.6%, an improvement from a 5% decline in 2023, the firm’s long-term performance remains robust. The 10-year total shareholder return is steady at 6%, while the 20-year metric slightly dipped to 7% from 9%.

The exclusion of the 2004 financial year, which saw a 46% one-year TSR post-SARS pandemic, accounted for the slight dip in the 20-year return. Temasek continues to monitor global economic conditions and government policies to guide its investment strategies, maintaining a cautious yet opportunistic approach in the ever-evolving market landscape.

Editorial credit: T. Schneider / Shutterstock.com