The big concentration on financials is to play the rising Asian middle class theme. A lot of the exposure goes into China banks (not looking good going forward) and StanChart.
Err should have juz bot Apple leh? Look at its price since 2005 when Jobs returned https://sg.finance.yahoo.com/q/bc?s=AAPL&t=my&l=on&z=l&q=l&c= Ho Ching became CEO of Temasek in 2004, and Temasek started buying StanChart in 2006. She should have bot Apple.
Here’s why based on her thinking of riding the expansion of the Asian middle class (Not Italic bits below are my tots, snide comments).
What do two big American and European multinational corporations have in common? Not much on the surface when comparing consumer giant Apple to the FTSE-listed Standard Chartered bank.
However, both have been significantly affected by emerging markets in their first-quarter earnings. And how they’ve been affected is revealing of the way emerging economies have matured, particularly in Asia.
The emerging markets-focused bank, Standard Chartered, reported a big fall in pre-tax profits of more than one-fifth in the first quarter (22% to $1.47bn) as revenues fell by 4% and costs rose by 1%.
By contrast, Apple had a strong quarter where revenues rose by 27% to $58bn, driven by a 40% increase in sales of iPhones. More than 61 million were sold globally, and notably, the biggest market was China for the first time and no longer the US. [Demand from China’s middle classes, iPhone sales leapt 40% to 61.2m units.]
But iPad sales fell sharply by 29%, reflecting a weak spot in their figures. [Apple fixing this introducing new model for Jap aging market. If works in Jap, another big global winner.]
So, it’s a really tale of two emerging markets. [Ho, Ho, Ho]
One side of emerging economies is a concern over their slowdown in growth, which raises risks over loan repayments, not just in Asia but also commodity exporters in Africa and the Middle East.
These are Standard Chartered’s key markets. Indeed, Standard Chartered took a $476m charge on bad loans, which is 80% higher than the first quarter of last year, although loan impairments were lower than in the previous six months.
[Ho, Ho, Ho]
However, there’s also the consumer side of emerging markets to consider.
For Apple, China’s rapidly growing middle class generated an impressive 72% increase in sales of iPhones. And Greater China has even overtaken Europe to become Apple’s second largest market for the first time with revenues rising by 71% in that region to $16.8bn, which accounts for much of Apple’s strong performance. Net profit was a third higher at $13.6bn for the quarter.
So, as emerging markets, particularly in Asia, become middle income countries, companies that sell to those emerging consumers are well-positioned to benefit.
But the period of rapid economic growth, particularly via debt-heavy investment, of key emerging markets is seemingly over. And companies, particularly banks, are liable to struggle as those economies restructure toward being increasingly driven by consumption.
[Ho Ho Ho: so waz Temasek doing to get into the consumption plays? Olam? Asians eating more peanuts?]
My serious point that by focusing so much on financial services (30% of portfolio and not on consumer plays (outside of the Telecoms, Media & Technology sector: 24%), Temasek has for the last few years been betting on a three-legged horse. Other consumer plays are only a subset of Life Sciences, Consumer & Real Estate: 14%)