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Asia ex-China is the new Asia ex-Japan: fund selectors

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The need for tailor-made solutions is on the rise as clients are increasingly looking for ways to navigate geopolitical tensions, according to panellists at Asian Private Banker’s 10th Funds Selection Nexus 2023 Hong Kong.

During the event, private bank fund selectors shared which markets to focus on and where to allocate assets during the panel: From risk to reward – Navigating market volatility, emerging trends and geopolitical risks across APAC.

Geopolitics-driven allocation

Belle Liang, Hang Seng Bank

Among Hang Seng Bank’s clients, there has been a need for tailor-made solutions due to the impact of Covid and international politics, according to Belle Liang, the lender’s chief investment officer, investment and wealth solutions.

Conversations usually centre around China-US tensions and the rising Japanese equities market, Liang added.

Foreign investors’ sentiment toward China has also declined. Liang noted that European clients have been requesting Asia ex-China mandates, as opposed to the previous Asia ex-Japan ones.

“For example, we have a lot of clients who want to minimise their exposure to China,” said Liang, but also added that, “We [still] have clients who believe in China’s growth, and they only want more exposure.”

Eva Lee, managing director, head Greater China Equities, UBS Global Wealth Management Chief Investment Office, stressed the importance of sector picking as China’s growth slows. She noted it is vital to position into sectors that would benefit from the gradual rollout of economic support, as well as defensive stocks, as policies take time to unfold.

While expecting some volatility in the equity market, Grace Tam, chief investment advisor, Hong Kong, BNP Paribas Wealth Management, prefers to stay 30% in equities, especially non-US equities, as she regards them as expensive. However, she believes equities in other regions, including Europe, UK, and Japan, remain attractive.

Markets to watch

Liang is curious about the value of small to mid-cap Japanese domestic businesses since they have survived Japan’s two decades of zero economic growth. While she acknowledged the conglomeration of diverse cultures and demographics in the Asia market, Liang is also interested in ASEAN as mobile penetration, high-tech adoption and semiconductor adoption, as the region’s banking industry picks up.

Eva Lee, UBS Global Wealth Management Chief Investment Office

UBS’s Lee is bullish on India, as its corporate earnings growth in the next three years is projected to deliver 20% CAGR, versus the 7% over the last three years, and she also expects infrastructure investments to pick up significantly.

While Tam also likes India in the medium term, she is currently neutral on the country as she worries about valuations. However, Tam is waiting for entry points to upgrade India as she sees a structural growth story in the region in the long term.

Tam believes that Japan has been performing well over the past year, and expects yield curve control and negative interest environments to end in 2Q24. As that occurs, Tam expects Japanese banks to become beneficiaries, similar to European ones.

“Just like European banks, when the European banks get out of the negative interest rate environment, you can see they actually have very good profits,” said Tam.

DPM updates

Grace Tam, BNP Paribas Wealth Management

Lee noticed the development of DPM in Asia is not as mature when compared to other regions, as local investors prefer to make their own investment decisions.

Liang highlighted that clients might not desire DPM as last year, investors were disappointed by public equities and public debt moving in sync, for which there was no good way for the traditional DPM manager to mitigate. Addressing this issue, she believes a way to minimise such drawdown and rebuild investors’ confidence is needed.

As for Tam, she noticed the rising popularity of short-duration bond mandates, and now might be the time to gradually extend duration.

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