Temasek shifts China focus ahead of EM “super cycle”
Leading asset owners are making up for losses made in the first half of the year by doubling down on new economy sectors in China such as life sciences and technology. Their actions could prove to be portents for a longer ‘super-cycle’ of investing into the world’s emerging markets more broadly, predict investment experts.
Singaporean state investment firm Temasek Holdings has been a prime example of shifting its focus on China. After seeing its returns fall into the red in the first quarter of 2020 – it revealed a 2.28% loss on shareholder returns and a S$7 billion ($5.23 billion) drop in assets for the financial year ending in March – it doubled down on innovative sectors such as life sciences and technology, said Wu Yibing, head of China at the Singapore holdings company.
“We shifted towards domestic consumption [in China] and the digital disruption of traditional sectors,” Wu said, speaking at a webinar organised by the Milken Institute on Tuesday (December 8).
Temasek has invested in Chinese technology giants such as Alibaba, Tencent, food delivery Meituan and ride-hailing service Didi. Wu noted that these sectors had been resilient during the Covid-19 pandemic and benefited from the recovery in China, adding that the new economy would be a permanent trend that the fund will continuously invest into.
"Our longer term outlook for China remains very positive and will continue to invest in opportunities that meet our criteria for investment,” he said.
Chinese conglomerate Fosun International had a similarly painful investment experience early in 2020. It recorded a 73.6% drop in profits to Rmb2 billion ($306.2 million) in the first half of this year, due to heavy exposures in the entertainment and tourism segments that suffered amid lockdowns and travel bans due to the pandemic.
However, Alex Gong, chief financial officer at Fosun International, claimed the group’s outlook was much more positive. “We will capture the globalisation trend behind China’s dual circulation,” he said, speaking at the same webinar.
He noted that China has solid fundamentals for a quick bounce back in the economy. “The Chinese government has taken very timely and effective measures to cope with the pandemic and our entire society has basically returned to normal.”
ANOTHER EM SUPERCYCLE?
This rosy perspective has been broadly supported by the country’s economy. China is predicted to enjoy GDP growth of around 2.2% for 2020, according to a group of economists surveyed by Reuters, whereas most western countries are expected to suffer recessions.
And Fitch Ratings on December 10 revised up China's 2021 GDP growth forecast to 8.0% from 7.7%.
Indeed, China’s strong performance could help to spearhead a rising level of appetite for emerging market portfolios.
Foreign investors poured a record $76.5 billion into emerging market portfolios in November, encouraged by the news of a Covid-19 vaccine as well as a peaceful transition of presidential power in the US, according to a report from the Institute of International Finance in early December.
Bart Turtelboom, chief executive officer from APQ Global, said at the same webinar that investors may be on the verge of another deluge of investment into emerging markets, following the earlier such period “from the early 1990s to around 2007”.
“In recent years, it was much more a US and a US tech-focused story, Turtelboom added.
“I believe that on the back of the dynamic that we are now entering into post Covid-19, we could bein another emerging markets super cycle over the next 10 years, and China will be a big beneficiary of that because of its quite adept, macroeconomic policy this year.”
Wu did not speak to Temasek's specific interests in emerging markets beyond China. A spokeswoman for Temasek responded to further questions from AsianInvestor by noting: "We invest across geographies and industries, with no specific targets or allocations that we must meet. We will continue to invest in opportunities in China and emerging markets that meet our intrinsic value tests.”
BIDEN "A RELIEF"
Apart from the prospects for China and emerging market investment, the speakers focused on the impact of a new US administration in early 2021.
“I will say that Biden administration will be a relief for a lot of investors,” said Turtelboom.
The key will be, both from the US and from a Chinese perspective, what Europe will do in Asia, he said. “I mean, very clearly, Europe and China got lumped into one box by [the Trump] administration in the US, so Europe, obviously, is an incredibly important economic partner for both parties over the next two to three years.
Gong from Fosun also shared the importance of globalisation and how countries should develop partnerships to strike a balance. The newly established Regional Comprehensive Economic Partnership (RCEP) is a great case to demonstrate that the two systems (dual circulation) strategy does not mean isolation strategy, and China needs the rest of the world as much as the world needs China, he said.
“I think there is certainly more space for dialogue and cooperation among the US, China and the world beyond Covid-19,” Wu from Temasek echoed. “The Biden administration would resume the multilateral discussion, which would be positive sign. Like most global investors, we have relied on multilateralism and globalisation.”
However, the panellists had concerns too.
Gong highlighted that the initial advantage of having a large population which provides labour could eventually become a challenge and burden to the society and economy, while Wu from Temasek said that climate change is the riskiest factor for investors and humankind.