Temasek sees 'very attractive’ investments in China’s emerging sectors

Singapore’s Temasek sees “very attractive” investment opportunities in China at the micro level, noting that the sovereign investor is “still excited” about China despite headwinds.

Temasek looks beyond traditional sectors such as manufacturing or real estate to emerging sectors including advanced manufacturing, energy transition, digitalisation, and healthcare, according to Temasek China president Wu Yibing.

Wu Yibing, Temasek

“The reason that we are still excited about China is because we’ve seen structural competitiveness,” Wu said during a panel discussion at the recent Milken Institute Asia Summit.

Wu named China’s vast engineering talent pool, highly efficient and integrated supply chains, commitment to a green transition, the sizable consumption market, and technological innovation as core reasons.

These factors together formulate an environment for innovation at a fast pace and have broad impact not limited to the traditional internet sector, he said.

“That’s what I think drives long-term investor confidence,” Wu said.

Temasek has 22% of its underlying assets, or $62 billion, invested in China as of the end of March. This is down from 29% in 2020. Despite this, China is still Temasek’s top investment destination outside Singapore, followed by the Americas.

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Its direct investments in China included Koutech, a microsurgery robotics company; Shanghai Friendess Electronic Technology, a laser cutting control system provider; and Yum China, a fast-food restaurant operator.

Temasek’s portfolio by geography as at March 31, 2023 (Source: Temasek)

Wu noted that China is transitioning from an ultra-high-growth economy to high-quality growth, thus the era is “forever gone” when one could invest in real estate, bank, mines, and anything that is a hard asset and put on a leveraged bet.

“I would say very likely the champions over the next 10 years will be fundamentally different than champions you’ve seen over the last 10, 20 years,” he said.

He thinks the future of investing in China will be more selective, when enterprises with innovative technologies and the highest efficiency win.

On the current economic slowdown and property sector woes, Wu thinks the Chinese government is very focused on sustainable growth, hence the stimulus will be data-dependent and be balanced with long-term cost, which he thinks is healthy.

He stressed that long-term investors need to be aware of the Chinese policymaking cycle, from the year-end Central Economic Work Conference, the beginning-of-year Two Sessions, to the July Politburo meeting.

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Any signals conveyed at these events would take time to trickle through different ministries and departments.

“I think one of the important things is given how people are looking at China and where people's confidence level is, the market has lost its forward-looking function,” Wu said when referring to the recent stimulus on the real estate sector.

“So, I think it will react to the actual macro numbers and then as the numbers improve consecutively towards the end of the year, you can anticipate possibly that the confidence would return.”

On geopolitical tensions, Wu thinks the world is going to become more expensive due to the trend of regionalisation.

“So, I believe enterprises and economy ultimately would win by efficiency to deliver the world's biggest challenges, such as green transition and healthcare innovation, which would fundamentally need cost competitiveness. I think that's what the Chinese market ecosystem provides,” he said.

“I don't think the world would completely decouple. We just need to look at places where the markets will work together,” he added.