China Market

Temasek Sold China Tech Stocks – Should You Be Worried?

Calvin Lo

Temasek revealed in their recent 13F filing with the SEC that they have trimmed stakes in China tech stocks and even exited some positions (read here).

As an investor in China tech stocks, this move by Singapore’s state investor is mildly concerning and thus warranted a deeper look.

Questions that come to mind are why is a long-term investor like Temasek selling out of China tech? And more importantly, should we consider doing the same?

What did Temasek sell?

Temasek sold out of education stocks Kanzhun, TAL Education, and New Oriental. The reason for getting rid of these stakes are more obvious since the government has come down hard on the after-hours private tuition sector. One wouldn’t want to be swimming against the tide and going up against the CCP.

As for the China tech stocks, Temasek trimmed stakes in Alibaba (BABA) and Didi (DIDI), and completely exited Baidu.

Source: Whalewisdom.com

Temasek still has a large exposure to China

According to the Temasek Review 2021 Highlights, China is the largest geographical exposure for Temasek’s portfolio at 27% weight.

Keep in mind also that the SEC filing was only for Temasek’s stakes in publicly-listed companies valued at US$28.6B or only around 10% of Temasek’s total portfolio of US$283B. So even with this sell-off, Temasek’s exposure to China might not be reduced by much.

In addition, Temasek added other China stocks, most notably Pinduoduo (PDD) and BioGene (BGNE) amongst others. So at least we know that Temasek is not totally swearing off China tech stocks.

Source: Temasek Review 2021 Highlights

My thoughts on Temasek’s moves

Unfortunately, we can only catch a glimpse of Temasek’s trades for their publicly-listed companies which only make up a small portion of their overall portfolio. For their stakes in private companies, we may not get another look until the next Temasek Review in 2022.

That said, from their public disclosures we see that although Temasek is selling out of the big names, they are still buying smaller China tech companies.

My guess is that Temasek as an active investor might be trying to reallocate funds from more mature companies and those facing the highest regulatory scrutiny to younger rivals which might still be flying under the radar.

PDD for example has not been targeted by Chinese authorities, possibly because they business model of group buys of agricultural produce has so far been beneficial to Chinese society.

My game plan

So far, there’s nothing in Temasek’s moves that indicates to me an overly bearish stance on China tech.

My personal take is that Temasek might just be trying to reduce some risk in companies facing the most scrutiny (although why they sold Baidu still escapes me).

Personally, I’m invested in the Lion-OCBC Securities Hang Seng Tech ETF (SGX:HST) which caps individual positions to 8% and thus has broader exposure to smaller tech companies. Currently, I’m down about 19% on the position in the aftermath of regulatory crackdowns.

For now I’m not inclined to sell and just hold onto my positions. Hopefully China tech has bottomed out and we won’t see any further major crackdowns for the rest of the year.

In the short term, HST appears to be forming a wedge so we might see a breakout (hopefully to the upside) by early next year if nothing much changes. If the consolidation continues, I might add a little bit towards the end of this year.

Source: TradingView

Are you more bullish or bearish on China tech stocks in light of Temasek’s moves?

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