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originally made in Merrill Lynch which was taken over last year to save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.
--------------------------
Latest updates at Singapore News Alternative:
1. Singapore's Lesson: Buy High, Sell Low
2. Forbes' Singapore's 40 Richest
3. S'pore-based paper company threatens Indonesian orangutans
4. Singapore seen revising Q1 GDP to smaller fall
5. Singaporean MP accused for illegitimate Swedish funding
6. Temasek Buys CCB Shares from BofA
7. Shanghai's dream hits hard reality
New videos added:
1. Zhao Ziyang's Memoir
2. Peter Schiff Vlog Report - 18 May 2009
.