Equity strategies are dominating inflows from HSBC Private Banking’s fund investors in Asia this year, with ESG, China, and technology funds garnering high levels of interest contributions, according to Virginia Devereux Wong, the private bank’s regional head of funds & ETFs, Asia.
In fact, eight of the top ten funds by inflow year-to-date are equity strategies on the back of contributions from clients “across the board”, Devereux Wong told Asian Private Banker.
In the ESG space, Devereux Wong said that demand was highest for those that invest in companies or sectors that align with specific sustainable outcomes, such as transformative industry trends, environmental impact, low carbon transition, smart energy, and global responsible consumption.
“Interests in social impact changes, including healthcare, education and SDG credits were intensified as a result of COVID-19 as well,” she added.
According to research and consultancy firm Opimas, the ESG-aligned investments are expected to grow to over US$40 trillion in 2020, well up from US$31 trillion in 2018, at a CAGR of 15%.
“We like those funds that invest in companies that have a low environmental impact and provide disruptive solutions to fight against global warming,” Devereux Wong added.
Elsewhere, client demand for China-flavoured equity and fixed-income funds currently featured on the bank’s high conviction list is also strong. HSBC Private Banking expects China’s economic recovery to produce a GDP growth rate of 8.5% for 2021.
“Recently there has been strong liquidity in southbound flows, as the valuation gap between A shares and H shares remains high at 37%,” Devereux Wong said.
“Therefore, we would expect continuous flows in support of the H share market.”
In terms of the bond market, Devereux Wong pointed out despite tightening spreads, the China and the US 10 year government bond yield differential remains around 2%.
“For clients who would like to diversify their fixed income exposure,
onshore RMB bonds represent a great diversification tool due to low or negative correlation with other bond markets and a stable market for higher income generation,” she said.
Meanwhile, clients remain committed to digital transformation and Asian consumption stories that have dominated the investment landscape of late, with an emphasis on sub-themes such as digital consumption, 5G, digital connectivity, and digital healthcare.
Devereux Wong pointed out that the digital economy is currently worth US$11.5 trillion globally — equivalent to 15.5% of the global GDP — and has grown 2.5 times faster than global GDP over the past 15 years.
It’s a trend “too big to ignore”, Devereux Wong said, disagreeing that high valuations are the likely trigger for a big market sell-off.
“2021 is about recovery and rebuilding of global economies,” she continued.
“It is, therefore, about being selective and staying invested … We prefer to stick with fund vehicles that look at quality stocks, with low leverage and high cash flow. Instead of capturing cheap value, it’s important to look for the opportunity brought by the market dispersion [and invest] in the best-in-class funds as recommended.”
