http://asiasentinel.com/index.php?option=com_content&task=view&id=1880&Itemid=233
Singapore's Lesson: Buy
High, Sell Low
Aristocratic lineage isn't a
qualification for financial management
Ho Ching's flawed management of the billions of public savings
entrusted to her as chief executive of Temasek Holdings has
continued until the last. Her successor, Chip
Goodyear, formerly with BHP, moved in as CEO-designate in March and
formerly takes over in October. But presumably it was Ho Ching, the
wife of Prime Minister Lee Hsien Loong, who took the decision to
sell out of its huge Bank of America holding, an investment
originally made in Merrill Lynch which was taken over last year to
save it from bankruptcy.
Now she has managed to sell out at what, at least on a six month
view, looks close to the bottom of the US financial sector. The
sale was completed by the end of March so presumably took place in
the preceding few weeks. Since then the BoA share price has risen
66 percent.
Temasek's loss on BoA alone is
estimated around US$4.6 billion, or roughly US$1,000 for every
single Singaporean citizen. Big losses too
were sustained on most of the rest of the financial portfolio such
as Barclays of the UK and UBS of Switzerland.
Other huge losses were sustained by the even less transparent
Government Investment Corporation, which invested Swiss francs 11
billion in UBS in 2007 and added to it in a rights issue in 2008.
From US$60 in New York in 2007, UBS shares have slumped to US$13,
having been down to US$7. Did GIC also sell UBS when
Temasek was selling BoA? Or is its presence in Singapore, where it
occupies the former residence of the president, too useful for
bringing in business from Myanmar generals and other friends of
Singapore?
The desire to get out of Wall Street's
black holes was understandable but the exodus seems to have been
part of the group's follow-the-crowd
mentality. And one wonders if it is not
going to repeat itself. Goodyear's claim to fame was increasing
BHP's market capitalization from US$12 billion to US$200 billion
and a quadrupling its share price in his eight years at the helm.
However, most of this was luck – the biggest mineral price boom for
40 years -- plus acquisitions made at increasingly high prices.
Goodyear's reputation would be very
different if Rio Tinto had accepted BHP's top of the market bid
made just after he left office but with his
support.Instead Rio's ego maniac chief
executive rejected the offer so, having saddled itself with massive
debt of its own, now going cap in hand to China.
Will Goodyear push Temasek into resources because he knows about
them and Singapore itself has caught the China-growth bug? For sure
prices of commodities are down a lot from a year ago. But they also
have long cycles.
The latest investment focus of Temasek now, according to an
executive quoted by Bloomberg, is "going to be driven more and more
by China's economy and consumers so might as well load up more on
Chinese banks."
So Temasek is again
following fashion, re-focusing on Asia at a time when Asian markets
have already recovered a long way while its former western
favorites are still languishing. Temasek still seems to think that
Chinese banks made a good proxy for its economy and
consumers. Just like Southeast Asia in the 1990s,
China's economy can grow
rapidly, but still leave banks with piles of bad debts flowing from
government-directed lending.
For sure, developing Asia looks a better long-term bet than the
west, but discovering that today is not exactly evidence of being
ahead of the curve.
Quite how badly Temasek has done is
hard to figure out because the data presented is scanty and
unconsolidated. For example, in 2007-08 the
value of its portfolio increased by 13 percent to S$185 billion but
it is unsure how much of that was simply a capital injection from
the government. There are also black holes like its
subsidiary Astrea, which borrowed US$810 million in earlier in the
decade to invest in a portfolio of private equity and buyout
funds. Another fall for Wall Street fashion
which will likely be reflected in pensions for Singaporeans.
Meanwhile Temasek's local portfolio has been persistently trimmed
and now represents only 33 percent of assets. Of course it may make
more sense to invest in faster growing countries rather than in low
growth Singapore where there are few new opportunities for a
company which already controls so much. Nevertheless it hard not to
conclude that some of
these sales, such as the December 2008 sale of PowerSeraya to
Malaysia's YTL for S$3.8 billion are not partly designed to
generate capital profits readily available from long-held local
assets.
Ho appears to have made a career of
assuming that smart people with the right degrees and loaded up
with mathematical models in one hand and high sounding jargon in
the other knew more than anyone else about
investment. Thus during the boom years for
financial services, Temasek followed the crowd, pushing the
financial sector component of its portfolio up to 40 percent, most
of it invested in just the high profile western outfits favored by
Ho's Wharton-bred advisors..
Like the archetypal senior
Singapore bureaucrat, paper qualifications seem to have counted for
far more than actual experience running a business.
Such businesses as these people run are mostly Singapore public
sector ones shielded from the force of free competition. Even
Singapore Airlines is beginning to look jaded in an era of low cost
carriers pioneered by a Malaysian, Tony Fernandes and AirAsia, and
the gradual breakdown of fare cartel.
If nothing else, the record of Temasek
gives the lie to notion spread by Singapore's ruling clique that
they are the best guardians of the people's savings. Paternalism
morphed into an arrogance whose full cost to Singaporeans is for
now hidden by the opaque nature of the government's accounts, and
the very partial revelations provided by
Temasek. Singaporeans, gather your
purse-strings and, together, pull.
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