Supplements » Global Industry 2020

Hong Kong roundtable: Anticipating the next black swan

Funds Europe – How are Sino-US relations affecting institutional investors and asset management companies in Asia?

Zhong – The US is the largest capital market and China is catching up, so global asset managers are positioning themselves actively in the Chinese market. This is independent from US-China relations.

The Chinese government is restructuring and accelerating the opening-up of financial markets and is confident about introducing new market entrants with new capabilities. This creates more opportunities for global asset managers.

Ultimately, the two countries and whole world will benefit from a more constructive relationship between the US and China.

Vengayil – There is too much focus on the current political optics and rhetoric, and it will be a big mistake to think that this issue could fade away after the elections. I would not even call it a trade war or a conflict between the US and China, it’s increasingly evident it’s more of a tech war and what is happening is going to be one of the key issues that will drive the investment debates for years to come.

The tech war is nothing less than the race for supremacy between the world’s two economic superpowers in the industries of the future, and we see a genuine threat of a tech decoupling. I use the words ‘tech decoupling’ in a larger context, where the global markets for tech bifurcates into the Chinese node and the US node. We are already seeing some signs of that by the US banning TikTok, WeChat, and some of the discussions around 5G infrastructure.

Fu – I fully agree that the relationship is not going to be short-term. Both countries are going to a new normal in the way they are treating each other, regardless of who the US president is. As long as the ongoing dialogue is not destructive, the market will be getting used to that and will be able to think about what the best allocation strategy is in terms of capturing different growth opportunities because of the changes, for example with 5G. As we all know, there are crises in the market, there is always uncertainty in the markets, but to some extent because of these changes, that creates some clarity on developments happening around the region. Institutional investors and fund managers should be able to identify that.

Because of this ongoing geopolitical issue, companies, including fund management companies, have to think about how they operate in the region. A lot of companies need to be extremely politically sensitive in the way they operate: for example, if they want to expand in China and the parent company is in the US, how are they going to manage this dilemma? This is a very important consideration heading into the future.

Chan – It seems that clients are making a very clear distinction between the geopolitical noise from asset-allocation decisions, so we have seen Chinese investors continuing to invest into the US across different asset classes, from fixed income to equities. As a whole, we see that US fixed income is still in high demand across Asia. Of course, there are concerns around the economic implication of the tension, but it’s really the economic fundamentals rather than any political-level consideration.

From a business strategy point of view, we still believe that China will become the second-largest market for asset management in years to come and so asset managers, including ourselves, are eager to participate in the growth. We believe that we are well positioned for that, riding on our diversified investment capabilities, strong track record as well as client-focused servicing.

Vengayil – If you look at the foreign players, including the US ones, they have gone for all possible options when it comes to China, including bringing their global capability to the Chinese clients, selling their China capabilities to the global investors and participating actively in the domestic market. The firms who are taking a majority stake or 100% ownership in Chinese asset management companies includes US firms, so it’s quite evident from a business strategy point of view for us, nothing has really changed because of this.