Supplements » Global Industry 2020

Hong Kong roundtable: Anticipating the next black swan

Funds Europe – Looking forward to 2021/22, which areas do you anticipate will present good opportunities for your firm, but also for the wider asset management industry?

Fu – Definitely ESG. A lot of managers have been doing a lot of things and a lot of clients have been thinking about how they will position their portfolio to capture this structural growth opportunity. I don’t see an obvious leader on ESG in the region, but that’s not to say that no one is doing anything, because people are doing so many things and it a still very new in the market. For those managers who are really able to stand out, especially for good-quality active managers in terms of providing ESG products to the market, that will be the key opportunity to all the managers in the region.

With everything that has happened in the last six to nine months, there are still some very high-quality companies trading at relatively reasonable valuations, except the technology companies, which have been neglected by some investors in the region. Going into next year, that will be an opportunity that we will look into. We are also cautiously and actively looking into opportunities in China.

Chan – There are three areas: digital/technology, ESG, and private assets.

In the area of digital/technology, the eventual growth of e-wallets, open banking and data aggregation, the industry’s distribution dynamics will change and so would client expectations. To go beyond the role of just product providers, there is a need for asset managers to transform their business models so that they can get closer to the end investors. Being more embedded within the ecosystem alongside the banks will help achieve that, and co-developing tools and solutions with intermediaries could be one practical way to do so.

In the area of ESG, we are seeing increased interest in sustainable funds from investors in Asia. Specifically in Hong Kong, 40% of investors in the city regard sustainable funds as attractive investments because of their likelihood to offer higher returns, according to the recently published Schroders Global Investor Study 2020.

The study also found that 39% of investors favoured sustainable funds because of the wider environmental impact, and 29% said it was due to personal societal principles. It is clear that people want their values reflected in the way they invest, and our aim as an asset manager is to deliver not only returns for investors, but better outcomes for society as a whole.

In the area of private assets, investors’ search for long-term sustainable income continues as economic and geopolitical uncertainty persists. And as public markets appear disconnected from the reality of company fundamentals – and volatility remains – private assets are increasingly an attractive area for investors. For instance, Covid-19 has hit businesses that have robust business models, but that sit in sectors that are struggling due to lockdown measures. These are fundamentally sound companies, which need investment to endure a temporary period of hardship. Investing in such companies can allow entry at a reduced valuation, and the opportunity to use investment to take market share as economies reopen. Looking ahead, we believe private asset investment opportunities lie in changes to consumer behaviour across all industry groups, such as e-commerce, online entertainment, healthcare, food, automation, telecommunications, and data services.

Zhong – Asia is going to be our second-home market and will be a major growth driver for the group. This includes China, India, Indonesia and other developing southeast Asian countries.

Let’s look at China – it is a massive market with 1.3 billion people. There are multiple factors that are accelerating the growth of the market, including a boost in internal consumption post-Covid-19, wealth accumulation, sizeable pensions and retirement needs.

Lately, the Chinese government has been pushing for the development of the Greater Bay Area. It is a significant area with a population over 70 million and a giant economy that is going to be developed further. The Greater Bay Area will be much more mature, advanced, integrated and homogeneous in wealth management, investments, than the rest of Greater China.

Vengayil – We see huge opportunity coming out of ‘The Great Instability’ with the fragile nature of the economy, market and the wider society. The heart of this theme encapsulates how calm thinking can overcome turbulent events; and how corroboration of facts and data can help investors stay on track with their investment goals. With this investment ethos in mind, it will equip asset managers with the ability to identify and assess the magnitude of global tail risks; and discuss the need to incorporate them into the solutions that we offer to you, our clients. We believe the world was and will remain a volatile place for some time, and understanding the sources is important. This will definitely present opportunities for asset managers to help institutional and retail investors deal with this fragile situation and uncertainty by helping them to manage the volatility, protecting the downside risk.

At BNPP AM, we are very well positioned to help our clients with our broad range of investment capabilities, including alternatives combined with our multi-asset quant solution. We have a sound and robust footing in Asia, and this gives us the agility to structure focused solutions and thematic funds such as our sustainability+ strategies to better respond to the current market situation. To top it, our ESG capability is something which we are promoting globally – we believe we are one of the market leaders in this space armed with the capabilities and expertise to help investors attain long-term sustainable returns.

Chan – A very good opportunity not just for our firm, but indeed for the overall industry, is ESG or sustainable investments. There have been various studies showing the eagerness of investors to learn more and to allocate to sustainable investments. Some studies focus on millennials, some focus on Asian investors, but the results are all very consistent. We did a survey in a recent webinar and 68% of the respondents expect an increase in ESG allocation across various asset classes in the coming period, so it’s not necessarily only fixed income or equity but also other asset classes.

If you look at the Morningstar universe across all asset classes, ESG funds with four to five stars account for 50%, while non-ESG funds with four to five stars only account for 37%. It shows that ESG funds can deliver strong performance at the same time.

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