By Saeed Azhar and Anshuman Daga
SINGAPORE, July 3 | Tue Jul
2, 2013 5:00pm EDT
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.
03-07-2013, 09:00 PM
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