HSBC Global Private Banking (GPB) is betting on the rise of the ASEAN and India economies amid slower China growth.

“The Asia story over the last three or four decades has largely been a China story. But if we look forward to the next 10 to 20 years, it will not just be a pure China story,” James Cheo, CIO for Southeast Asia and India, HSBC Global Private Banking and Wealth, told Asian Private Banker in a recent interview.

Cheo highlighted that China will still be important, but the future will also see ASEAN and India joining centre stage.

The potential of ‘AI’

Cheo explained that the demographical pyramid in China is almost inverted, meaning that the country is facing the risk of a large ageing population over the next decade.

“On the other hand, if we think about ASEAN, think about India, the median age is very young, probably in the 20s or mid-30s, and the demographic pyramid is the other way round: it’s not inverted. We have a huge base of young people and I think that’s why in the next five to 10 years, the economic activity will shift to ASEAN and India,” Cheo noted.

“That’s why we coined the term of AI – not artificial intelligence – but ASEAN and India.”

Because of this demographic dividend, the potential growth rate in India is going to be very high, Cheo said, adding that India can easily deliver a potential growth rate of 6-8%.

“For ASEAN, depending on which country, but it can easily go 4 or 5% growth rate too. If ASEAN and India get their policy right, whether it’s industrial policy shifts towards manufacturing, moving up the value chain, or even using digital economy or getting those things right, that growth rate would actually be even higher.”

“The prospect is going to look extremely bright for us in ‘AI’. And that’s why investors who typically just look at China alone, I think it’s not enough. There is a need to add, ASEAN [and] India into the investment portfolio to really capture growth for the next decade.”

Why India over China

Cheo recently began covering the Indian market in addition to his role as CIO for ASEAN, as HSBC GBP expanded its footprint in India onshore once again.

“If you look at just 10 years’ worth of performance between China’s stock market and India, for example, China would be perhaps flat or slightly down, depending on the time period you look at. But if you had invested in India, 10 years ago, you are probably two or three times up, so that’s a huge difference,” he said, adding that while China has grown exponentially over the past decade, there was also a huge amount of volatility associated with it.

For Chinese equity markets, for example, Cheo pointed out that the market timing has to be spot on. Investors also need to consider multiple factors, whether economic cycles or the policy adjustments associated with it.

“I would say that there is a kind of realisation by investors that there is a need to kind of pick growth markets that show consistent return at least over the long haul.”

While the market cap is different, China’s CSI 300 growth rate was only sitting in the mid-teens over the past five years, whereas India’s NIFTY 500 was up close to 100% over the past five years.

Looking to next year

The fact that investors are cash-rich and sticking to deposits is no secret in the market, given the high-rates environment and market uncertainty. However, Cheo believes that investors are finally getting clarity as some of the fog is lifting.

“The first aspect is inflation. When we started the year, the inflation picture was not clear, but right now, I think it’s clear that inflation is clearly down, way below its peak and stabilising,” he said, adding that the interest rate trend will also become clearer when inflation comes down.

“If we look at the trend of one year down the road, it’s clear that interest rates will go down. This is becoming clearer. And I think there is a realisation by investors that just holding money market funds or cash may not get them those returns.”

Cheo added that the bank is seeing investors or even recommending investors to deploy that cash into any fixed income instruments. For instance, 10-year treasury yields now lock in almost 4.6% and if interest rates do fall, there is a capital appreciation associated with the bonds as well.

“I think it’s quite an important feature going into 2024. If interest rates do fall,  you want some appreciation from the investments, and cash doesn’t help you with that.”

Similarly, he added, if investors want to move up on the yield curve, they can look at investment grade bonds to get a little bit more return from the yield.

“Another piece of the puzzle”: HSBC’s Siew Meng Tan on re-entering onshore India