Terry Pan, chief executive for Greater China, southeast Asia and Korea at Invesco Asia Pacific, tells us about managing a business during Covid-19, opportunities on the continent and US-China decoupling.
From an investment perspective, how has Asia performed in a year defined by Covid-19?
From an Asian investor perspective, as well as the general Asian markets – whether that’s equity or fixed income or commodities – there’s certainly a consistency in terms of all the markets because of Covid-19. It’s not necessarily just the number of cases happening in the Asian region, but what’s happening around the world that is impacting global markets. It varies by degree, but from a market standpoint, if you look at equity market performance, client expectation around high volatility continues. Clearly, we have seen sectoral differences and certain sectors have done well, be it because they are coming out of the crisis better, or they have benefited because of how people are changing the way they are engaging.
When it comes to fixed income, there has been a market dislocation in the market in comparison to six months ago. The fixed income market has calmed down over the few months and quarters, but if we look at the longer-term trend in terms of what the central banks are doing, mainly through monetary policy to keep economies going or skimming on growth or reducing the economic contraction, we will continue to be living in a low-growth, low interest rate, low-return environment and yield will continue to be very low.
The market will continue to be challenging and from an investor standpoint, this is not news. For Asian investors in particular – whether it’s Hong Kong, Singapore or Taiwan – there’s an availability of different investment vehicles and ways for them to access different markets. In China it’s quite different between the domestic and international markets, but the ability to access different markets allows people to diversify. Looking at China specifically, it has done well relative to other markets, partly because it’s a more confined domestic market and from the Covid-19 angle, the recovery has been better there. We could all challenge the different numbers that we see, but the Chinese stock market and A-shares have done well this year. China is a more unique situation, but if we look at it from an Asian client perspective in terms of what they can do domestically and what they can do globally, there are a lot of similarities in what the Asian market has been doing.
Investors are looking for peace of mind and certainty amidst all of this volatility. Arguably, a lot of this is not that different from what global investors are looking for as well, and there is no free lunch out there. For lower-risk investments, whether that’s fixed income or other multi-asset strategies, the yield and return level that can be safely expected will be lower given the environment we are in.
China is the only major economy globally that is going to experience economic growth this year, albeit at a reduced rate. When we look at China with its domestic consumer market of 1.4 billion people, the fact that it’s experiencing some of the most seismic financial moves since joining the WTO in 2001 and an impending tech bifurcation, what do these ingredients mean for investors?
If we look at it relative to other global markets, whether that’s the US or Europe, we will see positive economic growth in China when the world is still recovering from the pandemic. From a Chinese investor standpoint, anecdotally we have seen the billions of dollars of flows going into new fund launches this year. A few years ago, we were looking at whether the market was experiencing growth in more conservative asset classes in money markets and growing very quickly. Equity has lagged behind – this year it has been dominated by different equity strategies. From a standpoint of how the domestic economy is doing, equity is not an unknown asset class to a lot of retail investors in China and there are significant flows going into the domestic equity market. One could argue about whether this is the best time, but from a client expectation view, life continues to go on in China.
From an investment perspective and how the market has been developing over the past 15-20 years, whether this is the asset management market or financial markets in general, we have seen the ability of managers and products creating opportunity for Chinese domestic clients to get exposure in the right way. If we use what we have seen for the first nine months this year as an example to see where client expectation is set in China in terms of where they want to put money, equity continues to be the place.
In terms of clients, we are in a place where they are more educated and experienced than ever before. They do see opportunities in equities, but that does not necessarily mean broad-based equities – there is still going to be a difference between the old economy and new economy. Companies perform differently, but the fact is there are opportunities out there and fund flows have been following that trend and investments in sectors and companies that are in a better position for future growth in China.