Bank of China

Temasek's trades in big banks like 'hedge fund'

PUBLISHED : Wednesday, 07 September, 2011, 12:00am
UPDATED : Wednesday, 07 September, 2011, 12:00am

Singaporean sovereign wealth fund Temasek Holdings' investment reversals in two of the largest mainland banks in the past two months have drawn criticism that it was acting like a hedge fund rather than a long-term investor.

In early July, Temasek sold 1.5 billion shares of China Construction Bank (CCB), the mainland's second-largest lender by market capitalisation, at HK$6.26 per share. Less than two months later, Temasek bought back 4.4 billion CCB shares for about HK$4.94 apiece - a 21.2 per cent discount to its earlier selling price - raising its stake to 8.1 per cent. Temasek bought back the shares on the same day that Bank of America (BofA), desperate to raise capital, sold about 13.1 billion CCB shares.

'It seems unusual for a sovereign wealth fund to trade in and out of positions in such a short time,' said James Antos, a senior analyst at Mizuho Securities. 'This very rapid pace of trade resembles what a hedge fund does.'

Temasek's behaviour is sending mixed signals to Beijing, he said, because while the sovereign fund made huge gains out of the deals, it also helped stabilise share prices.

Market observers say the timing of Temasek's exit from and re-entry into CCB has been strategically astute. Analysts speculate that Temasek divested its shares in CCB not only because the bank's share price was declining, but also because Temasek knew BofA would be forced to sell some of its holdings in CCB to raise capital, which could further depress CCB shares.

Temasek declined to comment. However, as it was selling down its CCB holdings, Temasek said the move was part of its regular portfolio rebalancing.

'I am a bit surprised that they would buy back into CCB so soon,' said Victoria Mio, a senior portfolio manager at Robeco Group, a CCB shareholder. 'Bank of America had to sell CCB shares to raise capital, despite the fact that the whole Chinese banking sector has experienced a sharp downturn in prices, and Temasek is taking advantage of the situation.'

Warren Blight, a senior analyst at Keefe, Bruyette & Woods, said: 'It was fairly well known that BofA would likely have to sell at least half or all of its stake; Temasek could have been opportunistic. If this is what really happened, they were just being really savvy.'

Temasek, besides lowering its average cost per share, actually raised its holdings to above the level it had held in CCB before its divestment, implying a vote of confidence in the bank's prospects, Blight said. Before the sell-down, Temasek owned 7.03 per cent of CCB H-shares, according to CCB's year-end financial report.

The moves out of and then back into CCB was not Temasek's only recent quick trades. In early July, the sovereign fund sold 5.19 billion shares of Bank of China (BOC) for HK$3.60 per share. On August 22, it bought into 97.11 million shares of BOC's H-shares at HK$2.972, a 17.4 per cent discount to when it sold the shares. Temasek now owns 7.07 per cent of BOC H-shares, according to the Hong Kong stock exchange.

The State Administration of Foreign Exchange (which manages most of the mainland's US$3.2 trillion in foreign reserves), the National Social Security Fund and CITIC Securities were among the buyers of CCB shares, the Financial Times reported.

CITIC Securities declined to comment for this report.