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Temasek announced on July 16 that it plans to invest about US$10 billion in India over the next three years, which has attracted market attention. Since last year, Temasek, based in Singapore, has continued to increase its investments in the United States, India and Europe, and has increased its investment activities in Japan.

Temasek said in its annual report (for the fiscal year ending March 31, 2024) released on July 9: "Our performance over the past 10 years has been boosted by higher returns in the US and India, which offset the impact of poor performance in China over the past three years."

However, Temasek's investment in China has not stopped.Wu Yibing, Chairman of Temasek China, was recently interviewed by a reporter from China Business NewsAt the same time, he said that he was paying attention to China's demand side, real estate and inflation expectations, and would continue to make innovative investments. On the one hand, the "innovation-driven" effect of the Chinese market is becoming more and more clear, and it is increasingly penetrating into various industries, affecting various industrial chains. On the other hand, China's "import substitution" track has good investment opportunities, and China's domestic demand also has great potential.

Temasek attaches great importance to the determination of long-term investment. Wu Yibing believes that after many ups and downs, what remains is the "brand". "From 2021 to 2024, the investment environment is relatively difficult for everyone, and many investment institutions have withdrawn from the market. When Beta is not good, we focus on Alpha and grow together with the real winners." Wu Yibing said that this is precisely the embodiment of "patience".

"Most people think that various factors are not cyclical but structural when the cycle is at its bottom." Wu Yibing said that most people are more optimistic than they actually are at the peak of the cycle and more pessimistic than they actually are at the bottom of the cycle. But the cycle is the cycle, and Temasek maintains firm confidence in China's long-term development.

Enhance the wealth effect and attract “capital flow”

In the past fiscal year, Temasek's global investment attitude was relatively cautious, but it was also increasing some investments in line with the four major structural trends of digitalization, sustainable living, future new consumption and longer life expectancy. It invested S$26 billion in technology, financial services, sustainable development, consumption and healthcare.

Temasek's latest annual report shows that its holdings in non-listed portfolios have grown from 20% in 2004 to 52% as of March 31, 2024. The 20-year and 10-year total shareholder returns have remained stable at 7% and 6%, respectively.

Over the past three years, the Chinese assets in Temasek's investment portfolio have performed poorly. Wu Yibing believes that a major challenge facing China's capital market is capital flow.

"In addition to factors such as geopolitical risks and economic confidence, the lack of wealth effect will lead to more obvious capital outflows. People often pay too much attention to foreign capital, but what we really need to pay attention to is domestic capital, which is the 'long-term capital' and 'patient capital' that everyone keeps talking about," said Wu Yibing.

According to his observation, the capital markets of India and Japan have been the Asian markets with the most obvious capital inflows since last year. However, almost all of the rise was supported by local funds. Due to the wealth effect, foreign funds followed suit, but the proportion was small. Take India as an example. Last year, the stock market rose, but the secondary market actually had a net outflow of capital, and it did not rely on foreign investment.

"The so-called wealth effect means that funds will flow to where there is money to be made." Wu Yibing said that capital flows are greatly affected by confidence, and confidence in turn affects capital flows. For example, the upper limit of insurance funds allowed to be allocated to stocks in the Chinese market has reached more than 40%, but the actual investment is only a few percent.

The Chinese market is showing "maturity" characteristics, and the low interest rate environment creates M&A opportunities

Despite the poor performance of the secondary market, Temasek's investment layout in the Chinese market is still expanding.

Earlier this year, Temasek announced its first issuance of offshore RMB bonds with a total amount of 750 million yuan.

"This is the first RMB bond because we feel that this market has gradually matured." Wu Yibing said that Temasek issues bonds all over the world, with a global investment portfolio and global sources of funds, while reaching out to global investors. The issuance of offshore RMB bonds is a new attempt.

In his opinion, China's capital market is undergoing a major transformation - gradually acquiring the characteristics of a mature market from an emerging market.

"In the past, investments in China were often 'growth capital', with few buyouts (acquisition of controlling rights). Chinese assets are still growing, but the stock is already very large. In the next stage of investment, there will be more and more M&A (mergers and acquisitions) and buyout opportunities." Wu Yibing believes that the current Chinese market is in a low-interest environment and has comparative advantages, which will also give rise to the growth of the M&A market as a whole, and this is also a very important exit mechanism for equity investment.

"Mergers and acquisitions are inevitable in mature markets and are an outlet for growing economies," he said.

Shen Ye, vice president of Temasek China, also stressed the importance of interest rate environment to M&A. "Interest rate is a very important factor in M&A. In the past, it was difficult to do M&A when interest rate was very high. Now that interest rate is falling, more M&A is possible." She believes that many of the first generation of entrepreneurs have reached the critical period of "inheritance", which also provides more realistic possibilities for M&A.

For example, in the field of innovative drugs, a relatively clear out-licensing model has emerged, and more and more multinational companies are purchasing the assets of Chinese companies. "This also reflects the transformation of China's innovative drugs from 'Me too' to 'Me better'," Wu Yibing told reporters. At the same time, new target research, new treatment methods, molecular research and other fields have also begun to attract attention from abroad.

Focus on improving macro factors and continue to innovate investment

Temasek will continue to maintain a cautious investment attitude in the future and is currently paying close attention to China's inflation expectations, improvements in real estate and demand, as well as opportunities in the innovation sector.

"At the macro level, we will continue to pay attention to how policies shift from the supply side to the demand side." Wu Yibing said that the current demand side faces the problem of how to restore consumer demand and corporate demand, as well as the challenge of how to resolve demand-side risks, such as real estate risks.

"The scale of fixed deposits continues to hit new highs, but people's expectations for the wealth effect have declined and confidence is insufficient." Wu Yibing said that before 2021, almost everyone firmly believed that "next year will make more money than this year", and the "ballast stone" effect of real estate is still obvious, but it is different now. Therefore, how to boost consumption at the policy level and push up CPI is a factor that needs to be focused on at present.

Wu Yibing believes that issuing "consumption coupons" is a policy that can be tried to boost demand.

"Looking at the U.S. market, everyone has been generally worried about the risk of economic recession since the beginning of last year, but at present, the U.S. economy is like 'flying a plane through the eye of a needle' - inflation has gone down, and the economy has not declined. Why? In fact, the multiplier effect of the consumption stimulus policy has far exceeded expectations." He analyzed that the mainstream of the U.S. economy is the service economy, and the "giving money" circulates among economic entities a large number of times, and the multiplier effect has exceeded the expectations of almost all economists.

In his opinion, the targeted issuance of service consumption vouchers to low-income groups is a demand-side policy that can be considered and may be relatively effective.

In recent years, China has increased policy support and capital investment in the field of innovation-driven development. A large number of technology-based enterprises have emerged, and traditional industries have also used new technologies to improve efficiency. In particular, many regions have recently established investment institutions funded by the government to invest in innovative industries, which are called different versions of "Temasek" by the industry.

In Wu Yibing's view, the most unique thing about Temasek is that, although it is a state-owned institution, its operation and management are completely market-oriented. "This is easy to say, but very difficult to do. We need to give full trust to the institution, and everything from talent incentive mechanism to investment assessment must be completely market-oriented." Wu Yibing said that if we want to learn from it, this is the most important point.

Wu Yibing believes that China's "17 Measures for Venture Capital" put forward a comprehensive support policy, among which the emphasis on fault tolerance mechanism is very critical. "If investors are held accountable for all investment mistakes, no one will dare to take risks." He said that if no one takes risks, there will be no venture capital, and without venture capital, it will be difficult to have sustainable innovation.

"The essence of innovation is market-oriented innovation, and only a vibrant market can give birth to rich innovation possibilities. The market is 'disorderly' to a certain extent. Because only with 'disorder' can innovation emerge from nowhere. Innovation is not directional. If it is directional, then large institutions will always win, and there will be no emerging innovative institutions." Wu Yibing said that on the basis of following the rule of law and norms, marketization means allowing "disorder" to a certain extent, and then in a seemingly chaotic market, surprises will emerge.