By Saeed Azhar and Anshuman Daga
SINGAPORE, July 3 (Reuters) – Singapore’s sovereign investor
Temasek Holdings Pte Ltd is coming under pressure to
review its large exposure to Chinese banks as the world’s second
biggest economy is on track for its slowest growth in more than
20 years.
The city-state’s AAA-rated wealth fund has poured billions
of dollars into the biggest Chinese banks over the past few
years including about $2.4 billion in the Industrial and
Commercial Bank of China since 2012 alone.
But Chinese banks now face a difficult outlook due to credit
tightening and bad loans. Banks suffered an unprecedented cash
crunch last month after the Chinese central bank allowed rates
to shoot to record highs to punish banks for making risky loans,
and to force them to curtail dodgy lending.
The state investor will shed more light on its China
strategy when it presents its annual report for the year ended
March later this week.
Temasek, which is headed by Ho Ching, the wife of
Singapore’s prime minister, faces two stark choices – either
trim some of its China bank holdings or be patient with China’s
painful economic and banking transformation to take advantage of
a possible recovery after reforms.
“Temasek will have to ride out the short-term restructuring
theme. Rather than head for the hills, it won’t be out of
character for them to take larger stakes should the opportunity
arise,” said Song Seng Wun, an economist at CIMB.
China accounts for more than a fifth of Temasek’s total
portfolio valued at S$198 billion ($156.5 billion) in the
financial year ending March 2012.
“China faces many structural challenges not just for the
banks, but also for the economy,” said Sanjay Jain, head of
Asian financials equity research at Credit Suisse.
“It is difficult to make a positive case on the banks on a
medium term view until the economy has been restructured and is
on a sustainable growth path driven by consumption, private
sector and services sector.”
Temasek, which translates as “sea town” in Malay, was burned
by its financial industry exposure in 2008 as stakes in large
European and U.S. banks plunged in value due to the turmoil in
global markets.
But it has kept 31 percent of its investment portfolio in
banks which it feels are strong and can capture emerging market
growth, trimming from nearly 40 percent before the financial
crisis in 2008.
Despite the cash crunch in China’s money markets, the
country’s four biggest lenders – Bank of China, China
Construction Bank, Industrial and Commercial Bank
and Agricultural Bank – might be better
placed to ride out the problem versus smaller banks.
“Within the banking sector, if you get exposed to it, then
the bigger banks are the ones that will at least have the
liquidity buffer,” said Wellian Wiranto, investment strategist
at Barclays Wealth and Investment Management.
“They are the ones which are better capitalised as well, so
there is a certain degree of protection there.”
Temasek benefited from exposure to defensive stocks such as
Singapore Telecommunications Ltd, its biggest holding
which offset the impact from underperforming Chinese banks.
The review will likely show that Temasek’s portfolio rose by
at least 8.6 percent to a record S$215 billion in the year to
March 2013, said CIMB’s Seng Wun.
Temasek could also provide details on why the state investor
sees more value in investing in the developed world despite the
stuttering European economies and slowing U.S. economy.
