Temasek: Still investing in China techs

Chinese yuan (renminbi) notes. Photo by Eric Prouzet on UnsplashChinese yuan (renminbi) notes. Photo by Eric Prouzet on Unsplash

This item originally ran on finews.asia.

Despite the plunge in China’s tech stocks, Singapore’s state-owned investment company Temasek Holdings is still keen on the sector.

Rohit Sipahimalani, Temasek’s chief investment officer and head of Southeast Asia, said the company is continuing to invest in technology stocks in China.

“That’s the second largest economy in the world. It’s one of the fastest growing large economies of the world. I mean, you cannot not be invested in China,” he said in a televised interview with Bloomberg on the sidelines of the Milken Institute Global Conference in Los Angeles on Wednesday.

Shifting Stance on China

The stance marks a shift from November 2021, when Sipahimalani said in an interview with Nikkei Asia that Temasek would pause its new investments in Chinese tech firms until there is more regulatory clarity.

Regulatory clarity may be on the way: Last week, China’s Politburo said it would step up policy support for the economy, including the “platform economy,” according to a Reuters report. China’s top leaders are also planning a symposium to meet with tech companies, including Alibaba, Tencent and TikTok owner ByteDance, the report said, citing people familiar with the matter.

Sipahimalani noted many China internet companies’ shares have been beaten down, and as policy clarity emerges over the next few months, there will be “attractive opportunities” for investments.

“Align With Policy”

In making China investments, Sipahimalani said it was important to be aligned with policy, even as policy is changeable, by focusing on the national priorities.

“For example, in areas like biotech, where we invest, it’s clearly a major focus area for drug development within China. Or you’re talking about in sustainability, whether it’s EVs, it’s the largest single market in the world for battery technology, manufacturing, solar panels, [and] general consumption,” he said.

Sipahimalani noted also that the world is becoming increasingly bifurcated, with Russia’s invasion of Ukraine accelerating the change.

“Spheres of Influence”

“You have to look at businesses whose markets are within the China economic sphere of influence as against the Western economic sphere of influence, and the fact that these businesses should not be relying on technology or other things from the other camp,” he said. “Keeping these parameters in mind, I think there definitely continue to be attractive opportunities in China.”

Pressure on China’s Techs

China’s tech stocks have ridden a mostly downhill rollercoaster over the past two years. The sector has posted sharp losses since 2020, when the mainland began implementing regulations, sometimes overdue, on new technology areas which had been allowed to engage in a “Wild East” strategy. Indeed, the public reason Alibaba’s financial arm Ant Group saw its Hong Kong and Shanghai IPO plans squashed at the eleventh hour in 2020 was due to concerns over regulating the company as a financial firm, rather than a technology one. The suspension came just after China drafted new rules for microlending online.

Some of the pressure on Chinese companies came from the Trump administration’s haphazard trade war against China, which included efforts to force the mainland’s companies to delist from U.S. markets. China’s response may have amounted to taking its own ball home from the game, leaving U.S. investment banks without IPO deals from the mainland.

The sector has seen some recovery on expectations China and U.S. regulators may be nearing a deal on sharing audit information on U.S.-listed Chinese companies, and on Beijing’s pledge recent pledge for more economic stimulus and support for developing tech companies. The promise of support came as China’s economy is facing a hit from lockdowns in major cities to enforce the mainland’s zero-Covid policy.

Temasek Hit by Selloff

Temasek has also been hit by the selloff in China tech stocks. In November 2021, Temasek cut its stake in ride-hailing firm Didi and in Alibaba Group, as well as other China technology plays.

In June 2021, Didi set its initial public offering (IPO) price at US$14 a share; on Wednesday, the shares, which trade on the New York Stock Exchange (NYSE), closed at US$2.02.

At end-March 2021, Temasek had S$381 billion (US$277.27 billion) in net portfolio value, with around 27 percent of the portfolio in China investments. Sipahimalani said the proportion of the portfolio in China assets likely hasn’t changed much this year.