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Supplements » Global Industry 2020

Hong Kong roundtable: Anticipating the next black swan

Our panel of experts in Hong Kong look at how empowering staff through technology is the name of the game since Covid, the accelerating trend towards ESG investment and the major developments in regulation. Chaired by Romil Patel.

Hong Kong roundtable Dec 2020

Xiaofeng Zhong (chief executive officer – North Asia, Amundi Hong Kong)
Amy Cho (chief executive officer – Hong Kong & head of intermediary – Asia-Pacific, Schroders)
Rakesh Vengayil (deputy chief executive officer – Asia-Pacific, BNP Paribas Asset Management)
Eric Fu (managing director and country head – Greater China, Ninety One)
Kylie Chan (senior director, head of wholesale and retail sales – Hong Kong, Natixis IM)

Funds Europe – How are asset allocations changing due to Covid-19 and the economic aftermath?

Amy Cho, Schroders – Over the last decades, due to the previous experience of SARS whilst also various developments around the world, firms are making proactive steps in preparing themselves for the future of work. We believe and have seen those who have been embracing technology and focusing on company culture and the relationship they have with their workforce more resilient to the impact of Covid-19./p>

For instance, several years ago, Schroders identified that flexible working was key to establishing true cross-business collaboration and business resilience, and that technology would play an integral role in this. By empowering staff with genuinely agile working, we can establish a deep relationship of trust.

We invested in digitalising all aspects of our operation and offered colleagues true flexibility to work. We rolled out a system that allowed them to work anywhere while still getting the same access to tools and resources as they would in the office. We’ve remodelled our offices to an agile workplace that encourages colleagues from different teams to share ideas and collaborate. By empowering them to work the way that is best for them, we saw efficiency increase. With the technology and culture in place, it was an easy and seamless transition for us when we began working from home or in split-team arrangements due to Covid-19.

While we cannot predict when the next black swan event will happen, we as a business should always be prepared for it. We believe empowering employees through constantly evolving technology is what makes this possible.

Xiaofeng Zhong, Amundi – It is too early to comment on the impact or the consequences of Covid-19 on asset allocation. But we have observed a few trends that have emerged from the pandemic.

Firstly, Covid-19 has been the catalyst for ESG investing and has accelerated the rate of ESG investment adoption. There has been overwhelming interest in responsible investing as more investors and asset managers understand the importance of ESG.

Digitalisation and generalisation of technology is another trend, as people are required to work remotely. Only technology enables businesses to continue to operate.

Thirdly, we have also seen some countries adapt much better than others to the negative consequences of the pandemic. There has been an acceleration of capital inflow into the Chinese market, for example. The Chinese government has further opened up the financial market at the moment of the global appetite increasing for China. It is expected that the trend will continue on the back of the very successful virus containment by the Chinese government.

Speaking of sectors, healthcare and pharmaceutical companies are the biggest beneficiaries of the public health crisis caused by the pandemic. We saw a dramatic rally in the capital markets on news of the vaccine, which is a reaction to prolonged desperation.

Kylie Chan, Natixis – Covid-19 is a shock and due to the nature of the crisis as a health crisis, the intuitive reaction is to see increased interest in health-related strategies. At the same time, with lockdown globally, we have to work from home, shop online, and so there is definitely increased interest in tech or related enablers. From an even broader perspective, we have seen a pick-up in interest from distributors and investors on ESG-related investments.

On the one hand, the current crisis has challenged the sustainability of current business practices and therefore highlighted the importance of more sustainable and resilient business models required. On the other hand, ESG funds have also demonstrated very strong performance year-to-date. According to S&P Global Market Intelligence, 17 exchange-traded ESG funds with a certain level of assets under management were analysed, and 14 of those funds outperformed S&P 500 year-to-date as of the end of July. So, when the interest is met with good performance, the flows come in gradually, and we have seen strong flows into our ESG funds.

For example, one of our ESG equity funds was below US$1 billion at the beginning of the year – it is now more than $2 billion. It is the same picture at the broader industry level because sustainable funds domiciled in Europe attracted record inflows in the second quarter of this year.

Eric Fu, Ninety One – There has been ongoing interest and discussions between clients on ESG and going back two to three years ago, clients were aware of that, but there hasn’t been solid investment interest coming from institutional clients or retail clients. Now, clients – whether they are distributors or institutional clients – are getting much more serious, because they see there is a structural growth opportunity from investing in ESG and that’s the biggest difference compared to a couple of years ago where they’d see it as just trying to invest responsibly rather than seeing the growth opportunity. During this crisis, people feel and see ESG products in general are also able to deliver quality performance.

People have been thinking and talking about setting a higher standard in terms of approving or reviewing ESG products to avoid greenwashing. That is very common in Europe and the US, but it’s not in Asia, so fund managers have to work really hard in integrating ESG into their investment process. At the end of the day, they need to create a product that can prove to the investor or the clients that it can capture a specific growth because of the ESG change.

We have seen better flows into ESG products, and I think it’s just the beginning because there is still a lot of room for managers to create truer ESG products in different asset classes.

Rakesh Vengayil, BNP Paribas Asset Management – Fundamentally, from an asset allocation perspective, what we are seeing is a paradigm shift given the current situation that’s playing out and the huge market volatility. In fact, Covid-19 has changed the fundamental assumption for building the asset allocations, It has shown us how certain markets are economically sensitive to a pandemic situation and how certain sectors or industries are sensitive to a more “work-from-home environment”. So, the investment managers need to take note of this and make the necessary changes to the risk adjustment applied, when determining the risk/reward trade-off, for the asset classes and global markets in general.

Asia, in particular China, will start becoming a bigger part of the investment portfolios and we are already seeing the signs of that. Ultimately, from the client perspective, the diversification to build the financial resilience is also very important because asset classes have become very correlated. The cost or the opportunity of the cost of diversifying in traditional ways has also risen quite significantly.

All these things put together, as a global asset manager, we should help our clients to first decipher the current situation, and also be able to propose alternative solutions to adapt their portfolios and their needs to the dynamically changing market situation.