I am about 15 months into my role at Eastspring. The first year has been spent on three key things: people, purpose and strategy. The key thing about this business is people, and I have spent a lot of time working on that and building the team and identifying new leadership. The second is purpose, because the company needs to have a purpose behind which my colleagues can rally. Each one of us needs to have a ‘why’ that we are working towards. Our purpose statement is: “Experts in Asia. Invested in your future.” We see Asia as our home, we are in 11 markets all across Asia and have a bigger footprint than any other multinational fund management company in Asia. We have a physical presence, people and offices on the ground and are able to leverage that knowledge for the benefit of our clients. Our goal is summarised as “five by four”. We are slightly north of US$200 billion ($241 billion as at December 31, 2019) in assets under management and our goal is to get to $500 billion by 2024, so a little bit more than double from where we are in the next four years. That is the goal that we have set and within that, we have developed strategies for investments. We call it the “three-pillar strategy” for investments and distribution – they work together to actually deliver this, but it’s not just about numbers. At the end of the day, how do we then contribute that into society? When we talk about invested in your future, the whole notion of ESG must come into play, because that is what the future is all about and if we care about the future, we should also be concerned about ESG. Asia is only slowly catching up in this area. My colleagues in the UK, Europe and the US are more advanced. It is partly due to education and a lot of organisations are working towards that, and the Monetary Authority of Singapore (MAS), our local regulator, is very supportive of promoting ESG and encouraging responsible investment. They have been holding discussions with several of us in the industry to talk about how they can be supportive of moves towards sustainable investments. In Asia specifically, the ESG challenge is both on the supply and demand, because this is still relatively new here. The demand from investors is not as strong as it should be, but we can see that it is growing. On the other hand, in terms of what we call supply – the supply of investable securities, for example – we are building a sustainable Asia bond fund. Finding paper to invest in has been challenging, but these are still early days and we continue to talk to various parties, counterparties, distributors and issuers. Looking ahead, there will be more for both the supply and demand side. It is still early days, but we expect that demand to grow in the days ahead. Is ESG something you look to deploy in terms of assessing risk across all your strategies?
If a company abides by a lot of these ESG principles, from a risk management perspective, that will give investors a lot of comfort. So, that is also something which will help to accelerate the interest and more importantly, the participation, in ESG funds. We look at it the same way and what we like to do is see how we can continue to do that across Asia, but we also have to be realistic, because across Asia this is just an emerging trend and we like to support that. What is your investment outlook for China over the coming 12-18 months amid global economic volatility, the Covid-19 pandemic and the US-China trade war?
China is the 800-pound gorilla that everybody is looking at and it will continue to be a major factor in terms of the spill-over effects on the economies across the region and around the world. If markets are any indication – the markets have continued to rally in China after there were signs that the Covid-19 situation has improved there. There are still some clusters of infections, but the numbers have actually come down quite drastically. Both in China and elsewhere, performance in the [stock] markets are going to be very much tied to the trajectory of the Covid-19 infections in those locations. In the case of China, because of the improvement in the situation, the economy seems to be getting back up to speed and there will be an expected pick-up in the Chinese economy over the course of the year, but the rate of growth is likely to be slow. In the past couple of years, growth has been around 6%, but this year it will perhaps be around 3% because of the knock-on effects of Covid-19. In China, the key structural drivers are the strong pace of technological innovation, and people are impressed with some of the things that they have done – especially in terms of the internet and how that has been leveraged across the country, the shifting demographics across the country and, related to that, very strong domestic consumption. These are three key factors that are moving in China’s favour and they are going to be very strong for sustainable growth. We have had a presence in China for a number of years and about two years ago, we started a wholly foreign-owned enterprise (WFOE) with two people and now have a team of 21 and are still growing. We have launched private fund management products, Qualified Domestic Limited Partnership (QDLP) products, as well as Sicav products for both equities and fixed income. The team there has done well. At the end of May , they have outperformed the local stock market indices by large margins since inception. There could be further upside in the Chinese market in the second half of 2020 – especially if we see a continued improvement of the pandemic situation in China and of course, the subsequent recovery. The two headwinds that we will face will be:
- The likelihood of weak external demand for exports from China; and
- The relationship between the US and China leading up to the US elections.
It will continue to grow. The Chinese consumer is getting more and more sophisticated and we see a very strong growth trajectory for the funds market in China. They are undergoing their own reforms internally in financial systems – they are trying to strengthen it and there is a lot of talk about wealth management products and so on. The regulators are trying to nudge things in the right direction. Given the size of China, you can imagine the pool of domestic savings needs to be harnessed and therefore encouraging them to put them into investments to save – whether it’s for retirement or other plans – is a very important part of it. China also has an ageing population, so encouraging savings on top of the pensions they already have is going to be key. As China opens up, that will present greater opportunities. Which investment opportunities are you identifying as attractive, long-term opportunities that can offer investors good yield? How much further can and should China go to be further integrated with global markets?
With the benefit of hindsight, it could have been in the technology sector – and that would have done very well. But the size of the economy is such that the opportunities, whether it’s in healthcare or consumer sectors, on top of technology, will be very high on the list. We are talking about a very large economy, and as it opens up there will be growth opportunities all across. Chinese companies are taking some of these very same technologies into the rest of the world – especially in Asia. They have moved into southeast Asia and India in a big way, so I would say they are also trying to globalise their offering. For investing in China, we are leveraging on these companies as they are not only penetrating the Chinese market, but also regional markets. Coming back specifically to financial services, the services sector is going to grow – especially the financial services sector. Given the needs in China, such as an ageing population and the need to save, foreign firms like ours can play a role in terms of working together with distributors to bring solutions that would be able to meet the needs of Chinese consumers and institutions. Are you optimistic or pessimistic for the next 12 months and where do you see some of these silver linings?
A lot is going to depend on the trajectory of the Covid-19 virus. The extent to which countries are able to deal with it and keep it at a manageable level, those countries are the ones that are going to come out ahead and get out of this crisis and recover much quicker by opening their economies and so on. I suspect that there would be a bifurcation of emerging markets. Right now, they tend to be lumped together, but even as you look at emerging markets today, there is quite a bit of difference between those who are able to respond very positively and effectively to the crisis and some who are still struggling. This bifurcation is going to also translate into market performance, so emerging markets are not going to be one monolithic group. There is going to be a separation between one group which handles it well and another group which doesn’t handle it as well. Generally, Asian emerging markets are handling it [Covid-19] better than other non-Asian emerging markets and that’s where the bifurcation may be happening. © 2020 funds global asia