As the strategic investment fund for the Government of Malaysia, regionalisation and internationalisation is an important aspect of what we do. It is a way to diversify our investment portfolio as well as build regional and global presence, partnership and networks, which in turn helps bring direct investments into Malaysia.

Bryan Lim Tsin Lin

Executive Director, Investments and Head of Khazanah Nasional Consulting (Beijing) Company Limited

One of the first Khazanah forays overseas was into China. For Khazanah, the Chinese market is an integral part of our investment footprint overseas. Besides being the second largest economy in the world and an undisputed rising economic and political super power globally and regionally, China has also been Malaysia’s biggest trading partner for the last nine consecutive years. The close bilateral relationship between the two countries is also premised upon deep historical and cultural linkages.

2018 marks the 13th anniversary of Khazanah’s coverage of China. As early as 2005, Khazanah acquired a 9.9% in the largest retailer in China then, Parkson when the company conducted an initial public offering (IPO). The initial investment was just one of a string of subsequent investments that Khazanah has made in multiple sectors in China, including in the education, renewable energy, finance, retail, innovation & technology and healthcare sectors. These investments in growth sectors and new geographical markets are long-term initiatives, as set out broadly by our mandate to invest outside Malaysia to create strategic value.

Following our maiden investment, we opened the Beijing Representative Office, Khazanah’s first international office, in 2008 with the aim of deepening coverage and building long-term presence in China. The Beijing office also serves as a base to support Government-Linked Companies (GLCs) exploring business opportunities in China. Thanks to our early investments into China, we were also poised to reap greater opportunities in the Chinese market and beyond. Our investment in Chinese stockbroker China Galaxy Securities in 2013 was one such example. Our existing relations with China Galaxy opened the doors to the eventual joint-venture between our investee company CIMB Group and China Galaxy, which heralds the beginning of a pan-Asian brokerage led by two formidable groups, both tapping into one another’s network in ASEAN and in China.

The then Chairman and Prime Minister Tun Abdullah Ahmad Badawi (centre) officiating the opening of Khazanah’s office in Beijing with Tan Sri Azman Mokhtar (left) and Datuk Ben Chan, the then Executive Director, Khazanah Nasional Consulting (Beijing) Company Limited

Ground breaking ceremony of Digital Free Trade Zone (DFTZ)

Khazanah recognised in 2011 that the next phase of growth would need to address the issues of technology, innovation and disruption. It is a powerful megatrend that is both a challenge and a great opportunity. One of our first major forays in technology internationally was in the pre-IPO investment of Alibaba Group, which preceded its record USD25 billion IPO in 2014, the world’s largest ever IPO to date. This remains one of Khazanah’s most profitable investments; we have subsequently recycled part of the gains into several technology companies in China and other part of the world.

Khazanah’s early investment in Alibaba provided us with an in-depth view of how e-commerce could benefit SMEs and transform a nation’s consumer market. In this regard, we are excited by Alibaba’s setting up of its first electronic-World Trade Platform (e-WTP) hub in Malaysia, which involves amongst others, the strategic collaboration of Alibaba’s logistic subsidiary, Cainiao Smart Logistics Network (Hong Kong) and Malaysia Airports Holdings Berhad (MAHB) to develop a regional e-commerce and logistics hub in Kuala Lumpur International Airport (KLIA) Aeropolis Digital Free Trade Zone (DFTZ).

The two cases above are examples of how Khazanah’s investment foresight in China provided us with the knowledge, insights and relationships necessary to cooperate with China, the rising powerhouse which is playing an increasingly active role in the region.

In April 2012, Khazanah obtained the Qualified Foreign Institutional Investor (QFII) license and expanded our investment operations to cover the A-Share equity markets as well. Obtaining the much-sought after QFII license back then was recognition by Chinese capital market regulators of Khazanah’s international standing, as well as representation of our positive views and long-term commitment to China. Today, Khazanah has USD500 million of QFII quota, expanded our public markets coverage to include both the Shanghai/Shenzhen as well as Hong Kong stock markets, and grown our portfolio value to by 80% to USD903 million as at end of 2017.

Besides investments, Khazanah also provides a platform for cross-investments within the region. For example, Khazanah’s issuance of the world’s first sukuk exchangeable into shares of Khazanah’s stake in Parkson in 2008 was successful in creating a ‘New Silk Road’, before the current ‘Belt-Road Initiative’ was launched, allowing investors from the Middle East to participate in the retail consumption growth of China. In line with Khazanah’s commitment in deepening the Islamic finance market in Malaysia and beyond, Khazanah also issued the world’s first offshore RMB-denominated sukuk in 2011 and the world’s first sukuk to offer exposure into China’s growing water utility sector in 2016.

While Khazanah has been expanding into other geographies in a gradual manner in the last 14 years, China remains one of our most important and profitable markets, contributing USD2.3 billion in returns to date. In terms of geographic exposure on a see-through basis, about 45% of our portfolio Realisable Asset Value (RAV) is foreign, with China making up 7.6%.

Khazanah remains committed to further exploring opportunities into China’s continuing growth, which will see us expanding our presence there with the opening a second office to be located in Shanghai.

Riding on Megatrends

Having a local presence in China enables Khazanah to be ahead of the curve in identifying budding trends and position our investments accordingly. For example, even in the early days, we identified the rise of the middle-class and consumption upgrade as a megatrend in China. As such, we invested in brick-and-mortar retail companies in the form of Parkson and Sun Art Retail, which we selectively monetized and recycled the gains into Alibaba when e-commerce was at the cusp of taking off; we have subsequently positioned ourselves to benefit from the growth of new tech-enabled Chinese retail and consumption formats. This investment philosophy, has also played out in our investments in the financial sector.

Source: Khazanah Analysis

QFII Portfolio Net Asset Value (NAV)Movements

(Since inception at 31 Dec 2017)

Source: Khazanah Analysis

QFII NAV breakdown by sector

(Since inception at 31 Dec 2017)

Source: Khazanah Analysis

Sukuk Issuance

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