A new U.S. warning on doing business in Hong Kong. A new U.S. warning on doing business in Xinjiang. A new British security warning on China. A new Japanese security warning on Taiwan.
There's a lot of danger out there, and in the last day or so anything China-related has been particularly fraught. On top of that sit all the concerns over the aggressive action against U.S.-listed Chinese companies such as Didi Chuxing (DIDI) taken by Beijing.
And yet investors also have a reminder as to why they take on that China-related risk. Temasek, the sovereign wealth fund that Singapore insists is not a sovereign wealth fund, has just posted a one-year return of 24.5% on its holdings, in large part thanks to successful positions in Chinese companies.
Temasek holds the Singapore government's equity stakes in private companies such as flagship carrier Singapore Airlines (SINGY), Southeast Asia's largest lender DBS Bank (DBSDY) and Asia's largest developer, CapitaLand (CLLDY). The government says it isn't really an "SWF" because it pays taxes and operates like a corporation. It's a sovereign wealth company.
The returns it just reported for the year through March 31 brought its net portfolio value to a record S$381 billion (US$281 billion). China is its largest area of exposure, home to 27% of assets, ahead of the 24% it has in Singapore and 20% in the Americas.
Temasek benefited from a cluster of high-profile listings this year. It is a backer of the Chinese short-video app, Kuaishou Technology (HK:1024), the TikTok rival that listed in Hong Kong in February. Its shares are up 39.5% from its offer price, but have actually been on a steady slide since the shares tripled on their market debut.
Biotech operator JW Therapeutics (HK:2126) is Shanghai-based and also went public in Hong Kong, last November. The immunotherapy specialist peaked at HK$51 in February, at which point it was more than double its HK$23.80 offer price. It has been on a disappointing slide since, with lurches lower in March and June that leave investors looking at a 5.7% loss since the listing.
Temasek points to the U.S. listings of cloud-computing operator Snowflake (SNOW) (up 120%), video-game maker Roblox (RBLX) (up 86.7%, albeit from the suggest price in a direct listing) and food-delivery app DoorDash (DASH) (up 73.0%) as other successful listings in the last fiscal year. There's been the occasional lackluster debut such as online-fashion site Poshmark (POSH) (down 5.0% since listing).
Temasek also hasn't fared quite so well, of course, with Didi. The ride-hailing app's stock is down 11.3% from its US$14 offer price, after a bounce coincidentally also at 11.3% on Tuesday.
It is unclear whether Temasek or other China-focused investors can look to the United States for listings or exits from their holdings, particularly in the tech sector. For now, Chinese tech companies are pulling listings left right and center, with medical-data provider LinkDoc Technology, podcast service Ximalaya and fitness app Keep all reportedly among the ranks telling the Securities and Exchange Commission that they're having second thoughts.
Temasek put new money into Chinese startups such as software maker Black Lake Technologies, drug developer Clover Biopharmaceuticals and health-drink maker Genki Forest. All three are surely looking to the Hong Kong market for listing plans if they're keen to attract international investors, since New York is for the time being a no-go area for Chinese tech.
The Americas were the largest area for new investment this year at Temasek. It "invested during market dislocations based on our value tests," placing S$49 billion (US$36 billion) in new bets worldwide, and taking S$39 billion (US$29 billion) off the table, both record numbers.
Temasek expects the focus on the Americas to continue, and in fact notes that the incremental growth has been greatest in the Americas for seven straight years. It's seeking greater exposure to developed markets with the aim of improving resilience in the portfolio.
The warnings this week include a U.S. State Department reminder to U.S. companies to scour their supply networks to ensure there's no chance of forced labor in China's westernmost Xinjiang province being involved. Companies can be judged "complicit" in human-rights abuses, the State Department cautions in an updated advisory.
The Biden administration is also prepping a warning to U.S. companies about the risks of doing business in Hong Kong, which if it comes to pass would be a first. The National Security Law passed last June, a new data-administration law, and a new Chinese law that allows the punishment of any company found to be abetting overseas sanctions (see Xinjiang, above) rank among the top threats. China is essentially exporting its draconian autocracy into previously free Hong Kong. There's a complete suppression of dissent here now.
Where that leaves an international investor like Temasek is an interesting point to ponder. The threats for such investors who previously operated above and beyond international boundaries, particularly for cross-border listings, are reaching a tipping point. Investors are being forced to consider whether they are placing money into West and East. If you heed all those warnings, spanning those two spheres is increasingly difficult to pull off.
