Here’s an interesting footnote to Temasek’s latest full-year review: banks are back in favour.
The Singapore sovereign wealth fund reported a return to shareholders of 12.19% for the year to March 31, with a characteristically lively amount of churn – S$29 billion ($21.2 billion) of investments and S$16 billion of divestments during the year.
And while investments in tech disruptors like Go-Jek, Tencent and Ant Financial tend to catch the headlines, it is worth noting that financial services now accounts for 26% of the portfolio, the biggest single sector constituent, up from 25% a year ago and 23% in 2016.
Overtake
During that two-year spell, financial services has overtaken technology, media and telecom. This is despite the fact that Temasek trimmed its holding in ICBC during the period and is in the process of selling its stake in Indonesia’s Bank Danamon to MUFG.
What does this tell us? Firstly, this is a reflection of what Temasek has always looked for. Its four key investment themes are transforming economies, growing middle-income populations, deepening comparative advantages and emerging champions; banks chime with all these themes. Holding 29% of DBS, 16% of Standard Chartered and 4% of China Construction Bank is very helpful when you want to reach growing middle-income populations.
Secondly, some of these stocks, notably DBS, have done extremely well over the last year. One of DBS chief executive Piyush Gupta’s goals over the last year was to see the firm valued more as a tech stock than a bank stock and his efforts really began to pay off during Temasek’s review period.
Overlap
This brings us to a third point: the overlap of the banking and tech themes. Chin Yee Png, Temasek’s head of financial services and senior managing director for China, and the former Asia FIG head at UBS, was asked about technology investment in a media briefing in July. She mentioned DBS before she mentioned anyone else, pointing out the bank’s digital transformation.
Similarly, it is hard these days to draw clear lines between sectors. What is Ant Financial? Png calls it: “New financial services – a technology company which links traditional financial services to new consumers.”
Since 2011, Temasek has focused on five sectors – technology, life sciences, consumer, agribusiness and non-bank financial services – and Ant clearly qualifies as three of them. So, increasingly, does Indonesian ride-hailing company Go-Jek, which is now a financial services player in its own right. And there is Tencent, which runs the dominant payment platform in China through WeChat, owns a stake in CICC and is an early investor in Go-Jek, among many other things.
However we divide portfolio companies between sectors, it is clear that the provision of financial services – whether through banks, insurers (Temasek holds AIA and Ping An Insurance) or one-time motorbike food delivery apps – remains a trusted method of playing the theme of the emerging consumer.
