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DEALTALK - In asset shift, Temasek checks out tech sector

SINGAPORE (Reuters) - Singapore state investor Temasek, which manages assets of more than $120 billion, may be looking to snap up stakes in technology companies, joining other big institutional investors in turning bullish on the sector’s improving outlook.

The shadow of an official of Temasek Holdings' falls on a backdrop with their logo at their headquarters during the presentation of Temasek's annual review in Singapore September 17, 2009. REUTERS/Vivek Prakash/Files

The possible shift comes as expectations of strong Asian demand and a rebound in corporate spending have boosted shares in global tech firms, including driving up Intel Corp by 4 percent to their highest in more than a year.

Such a move would also fit Temasek’s recent portfolio shift into new sectors beyond financials and telecoms.

Temasek, which recently bought shares in search-engine firm Yahoo Inc, is not only looking at blue-chips, but may also consider buying private companies ahead of them listing on global exchanges such as Nasdaq, said sources familiar with the plans.

Temasek declined to comment on its investment plans.

The potential investments follow recent stake purchases in China’s Shanda Interactive and Blackberry-maker Research in Motion, according to filings in late February with the Securities and Exchange Commission.

Late last year, Temasek pumped $242 million into buying shares in South Korean light emitting diode (LED) company Seoul Semiconductor and its affiliate.

“They are really keen to invest in technology firms that are innovative,” said a source familiar with such deals. “This also means investing at the pre-IPO stage.”

The sources asked not to be identified as Temasek’s investment plans are not public.

Technology accounted for just 1 percent of Temasek’s portfolio in its last financial year, when a third of the assets were in financials and about a quarter in telecoms and media.

Other sovereign funds, except for Abu Dhabi, also have smaller exposure to the technology sector.

Graphic on Temasek portfolio and Thomson Reuters estimates for technology firms' earnings growth: click here

Temasek shied away from big M&A deals in 2009, cautious after losing billions of dollars on Western banks. It has either supported its portfolio companies or bought smaller stakes in newly listed firms, mimicking a strategy pursued by sister fund, the Government of Singapore Investment Corp.

But the state investor has built up a big war chest after selling assets such as a stake in Bank of America and raising $3.9 billion through bond sales since October.

Temasek is not the only large institutional investor bullish on technology.

Henderson Global Investors and Franklin Templeton are also positive on the sector, which has come a long way from the dotcom bubble burst a decade ago.

“Technology has the potential to outperform in 2010,” Stuart Gorman, Edinburgh-based director, technology equities at Henderson, told Reuters. “Now, 10 years post-bubble, we have a very different beast.”

He said demand is improving, companies are well run, with strong balance sheets and often significant revenue visibility, and valuations are attractive.

Henderson is bullish on e-commerce firms such as, online advertising through Google and Baidu, online entertainment and companies that would help in building enterprise infrastructure.

Temasek’s renewed interest in the sector comes after it pared down its tech holdings -- mainly in the microchip industry -- in recent years.

It recently sold chipmaker Chartered Semiconductor for $1.8 billion to an Abu Dhabi state fund after the loss-making firm had relied on Temasek financial support for years.

Its takeover of STATS ChipPAC, just before the credit crisis erupted, is under water with shares of the chip-testing firm trading 42 percent below the S$1.75 a share that Temasek paid.

However, valuations could still attract funds such as Temasek and other strategic investors into tech blue-chips.

“We’re paying much the same price for Microsoft today as at the peak of the (tech) bubble 10 years ago,” said Peter Wilmshurst, a Melbourne-based portfolio manager at Franklin Templeton, noting Microsoft has grown substantially in the last decade, but has a price-to-earnings ratio in the teens.

(Editing by Ian Geoghegan)

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