Temasek is feverishly buying into South Korean, Indian, Indonesian and Malaysian companies. Since June 2003, it has purchased 9.1 percent of Korea's Hana Bank, 5 percent of India's ICICI Bank Ltd, a similar stake in Telekom Malaysia Bhd, the country's biggest phone company, and chunks of PT Bank Danamon Indonesia and PT Bank Internasional Indonesia.

That it isn't abandoning Singapore is evident from its $1.6 billion takeover bid this week for Neptune Orient Lines Ltd, the port-city's largest shipping company. Still, the predominant theme for Temasek, as outlined by Chief Executive Ho Ching to employees in June, is ``to become a formidable Asian equity-house, operating in Asia, as well as the world.''

Ho is the wife of Finance Minister Lee Hsien Loong, who will become Singapore's new prime minister next week.

Before we get to Temasek's strategy, a word on Singapore's past. The former British colony has raised the per capita annual income for its 4.2 million people to $21,825, from $512 in 1965, when it was expelled from the Malay Federation. Unlike other ``Asian Tigers,'' like Hong Kong and Taiwan, a key part of Singapore's strategy was to create state-linked businesses like Singapore Telecommunications Ltd and Singapore Airlines Ltd.

Temasek's Role

That's where Temasek came in, providing, since 1974, a layer of separation between government ownership and control, and ensuring that state-linked businesses weren't run in the same callous manner as in India or China. Temasek owns controlling stakes in seven of Singapore's 10 biggest companies by market value. It earned a 16 percent annual return over 30 years.

Singapore's government-linked companies, or GLCs, are ``an unusual breed,'' says an International Monetary Fund study by Carlos Ramirez and Ling Hui Tan. ``Being a GLC is rewarded in the financial markets by a premium of about 20 percent.''

So what has changed now for Temasek to scout for opportunities overseas? Why not stay focused on local winners that make up the core of its S$100 billion ($58 billion) holdings? The reasons lie both within Singapore, and outside.

For one, Singapore is graying. The median age of the population is forecast to rise to Japanese levels of 41 years by 2010, doubling from 1970.

Graying Population

A preponderance of old dependents will bring down the savings rate, currently a high 45 percent. If the city's aging population has to stay wealthy, the state must invest its past and current savings in ``younger'' countries like China, India and Pakistan, so it can collect dividend checks later.

The island-state will have an ``external economy'' worth $500 billion by 2020, according to Daniel Lian, a Morgan Stanley economist in Singapore, who expects overseas earnings to account for 25 percent to 30 percent of national income.

``No other economy on earth,'' says Lian, ``will own such large external assets relative to its domestic economic size.''

A part of the thrust overseas will come from Government of Singapore Investment Corp., a financial investor that recycles the island's current-account surpluses in overseas stocks and bonds. (Surpluses over the past decade amounted to S$272 billion.) Temasek, a direct investor, will also play a role.

Not Big Enough

Singapore's draw as a country that guards private property, allows imports of most goods at no tariffs, and has little corruption or crime, isn't enough to secure investments at a time China and India, with 2.3 billion consumers and 1.3 billion workers between them, are opening to the world economy.

China doesn't need Hong Kong as much as it did in the past, for financial and trade intermediation. It needs Singapore even less. India's service providers are offering to do anything Singapore can, and cheaper.

The $91 billion economy, a city without a hinterland, ``is not optimally sized,'' says Manu Bhaskaran, the Singapore-based head of economic research at Centennial Group Inc., an advisory group based in Washington DC. ``It did well when its neighbors were much less developed. Now, things don't automatically gravitate to us anymore.''

If business is not going to come to Singapore, then Singapore must go where the business is.

That means Temasek going to China for a slice of state-run companies as they privatize, to Indonesia and Korea for stakes in their banks as they restructure, and to India, where Apollo Hospitals Enterprise Ltd., a local company in which Temasek plans to buy a stake, recently announced plans to set up an outpatient center in London to bring people to India for low-cost surgeries.

Following Its Companies

It's logical for Temasek to want a footprint in countries that are driving the value of its Singapore investments.

CapitaLand Ltd, a Singapore property company owned by Temasek, now earns two-thirds of its profit overseas. The group has invested 5 billion yuan ($604 million) in China, where it has 1000 employees.

Temasek's shopping list will only become longer, and more exotic. If its bets pay off, several decades from now, Singapore won't ``sink into abbreviation,'' a fate Morgan Stanley's Lian predicts for Asia's other city economy, Hong Kong.

                  
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