Temasek has emphasized that its lower China exposure is linked to valuation declines, not a gradual withdrawal from the China market. Yet it is hard to ignore the fact that Temasek seems to be dialing down its investments in China amid prolonged tensions between Beijing and Washington, as well as a serious slowdown in the Chinese economy.
We reckon that Temasek is tacitly acknowledging that some economic fundamentals have shifted in China – even if it will not too much about the matter in public. The Singaporean sovereign wealth fund began ramping up its China investments in the mid-2000s, a time of exponential growth in the world’s second largest economy. Temasek invested in a broad array of Chinese companies, from the Bank of China to Alibaba, while its subsidiaries built commercial properties across the country. This era lasted until the coronavirus pandemic hit in 2020. Beijing’s ensuing harsh measures to control the pathogen shook investor confidence in an unprecedented manner. The willingness of the Chinese government to sacrifice economic growth for political goals despite the high costs have had far-reaching knock-on effects.
That’s why it is likely Temasek’s China holdings will continue to fall gradually in the coming years, even if the Singaporean sovereign wealth fund’s leadership is playing up a so-called “new phase” of China deals in sectors currently favored by the Chinese government like electric vehicles and biotechnology. While Beijing does seem committed to the long-term success of these industries, since they are instrumental to its goal of becoming an advanced manufacturing powerhouse, one never knows how China’s domestic politics or geopolitical tensions may impact their growth. To the latter point, Temasek has invested in the Chinese electric vehicle maker BYD, which faces a rising tariff risk, while Chinese biotech companies may become ensnared in the U.S.-China rivalry.
With that in mind, Temasek’s plan to invest up to US$30 billion in the U.S. over the next five years seems reasonable. "It's an incredibly deep and broad capital market in the U.S.,” Jane Atherton, Temasek's head of North America, told Reuters in a recent interview. "The U.S. is really at the forefront of everything that's happening from the AI perspective." The U.S. economy grew faster than expected in the second quarter, while the S&P 500 has risen 14.5% this year in a rally driven in part by investor excitement about artificial intelligence.