Asian HNW and UHNW Investors: The Quest for Yield & Income-Producing Assets
Dec 2, 2020
In a world in which a huge portion of the world’s highest quality fixed income has collapsed into negative yield territory and in which the pandemic has thoroughly muddied many of the economic, fiscal and credit waters around the world, how should Asia’s wealthy private clients, for long keen buyers of income in many guises, position their portfolios? What role should fixed income, or possibly private debt, play? And what role should equity and dividends play, either public or private? These and other vital questions relating to the world of fixed income, credit and the quest for income were debated in a lively and insightful Hubbis Digital Dialogue on November 26.
Sponsors: CSOP Asset Management, Lyra Capital, Ping An of China Asset Management (Hong Kong), and Samsung Asset Management
There are numerous questions to address with Asia’s HNW and UHNW investors as they gradually rebuild portfolios ready for the new world ahead, hopefully post-pandemic if the various much-vaunted vaccines prove effective. Fixed income is the first port of call for yield, so with interest rates so incredibly low globally, is leverage back on the table or is there simply too much uncertainty? What should wealthy investors be buying and how? Sovereign or other AAA multi-lateral debt? Munis? Sector-specific high-grade corporate paper? Developed world? Emerging market, and if so, which regions? Chinese paper, as it opens its truly vast debt markets that offer considerably higher yields than Western paper? High yield? Dollars? Euros? Yen? Local currency Asia paper? Single bonds? Bond Funds, fixed income ETFs?
And how about particular strategies, such as Fixed Maturity Portfolios, or other more engineered methods to combine return with peace of mind on the credit front? Structured products and more complex instruments? What about the more illiquid, alternative private credit market, does this offer greater yield in return for illiquidity?
And of course, dividends are on offer in the equity markets, so where are investors turning for risk exposures, and what markets are they targeting in terms of regions and also how are they dividing their exposure between public and private equity opportunities?
What about property exposure, as the quest for yield or income becomes ever more central? Are wealthy Asian investors targeting property sector debt, or REITs, perhaps baskets of REITs in ETFs to find an income-producing hybrid between real estate, equity and debt? And how does this all tailor to the Asian HNW and UHNW investor psyche and outlook?
The discussion opened with a guest highlighting uncertainties and how many investors this year have needed to take the income they have from their portfolios to paper over shortages of cashflows from business, or for other liabilities.
“Obviously the fixed income markets are one of the best places to go for income from a return on liquidity perspective,” he said. “There are a lot of risks from going outside of liquid public markets, and we see local high yield bonds, for example in Asia, as being one of the better places to go, emerging market debt is also appealing, and also within liquid markets, we can look at REITs today, as the property sector has been through quite a terrible time in 2020 and REITs are probably a good place going forward where returns might be quite good because of the recovery.”
Another expert agreed but noted that in this current environment, it is quite challenging to generate income, but for clients. “We are focusing on emerging markets debt, local currency debt, and also we have an opinion of a structural weakening of the US Dollar. On the REITs front, I am warier, I would be very selective in that space, but I think there are more opportunities in the fixed income emerging market and also renminbi-denominated bonds.”
Expert Opinion - Christina Kautzky, Head of Distribution for Asset Management in Non-Japan Asia, Credit Suisse Asset Management: “Credit Suisse Asset Management has been on the forefront of innovation in a variety of areas which have allowed clients to enhance their portfolios and diversify their sources of income. We have been delighted to see the response to solutions like fixed maturity products, supply chain finance, and private credit opportunities stemming from the firm’s well-established non-investment grade credit franchise.”
Expert Opinion - Dr Sean Chang, Head of Fixed Income and Cash Management, Ping An of China Asset Management (Hong Kong): “EM Sovereign is an area for major recovery in 2021 as the pandemic is expected to wind down due to vaccine and health policy in place. High yield and private credits could offer extra yield pick-up but investors are required to be selective during the investment process. We would pay much attention to the sovereign sector as they are absolutely distorted, especially in Europe where we do not expect the negative yield environment would sustain looking for very long.”
Expert Opinion – Simon Godfrey, Senior Vice President, Head of Products, EFG Bank: “The acceptable level of risk depends on the client, of course, however the risk is multidimensional which means it can‘t be boiled down into a single spread or rating. Investors should instead evaluate their tolerance for liquidity risk, credit risk, counterparty risk, execution risk, reinvestment risk when assessing the different income solutions on offer. These risks are not anodyne – a headline yield and a credit rating are not enough to go on, and a managed or pooled solution may be best for mitigating some of these risks when seeking income.
REITs and ETFs combined
Another guest responded with far more of a positive take on the REITs space, arguing that the segment in Asia is very attractive at the moment. “We are in a persistently low yield environment yields in some traditional dividend-paying segments such as banks have pared back this year due to the pandemic,” he said. “As we search across the entire market, we see that beyond bonds, REITs are actually one of the very few asset classes that currently still deliver stable and relatively high dividends. In fact, because of the regulations, REITs are required to pay at least 90% of their taxable income as dividends to investors in order to fulfil the requirements for preferential tax treatment. So there is an ETF product comprising 30 REITs across the developed markets in Asia that have the highest 12-month trailing dividend yields, and with an indicated yield of 5.94% today. In a global high yield bond portfolio, as measured by the Bloomberg Barclays Global High Yield Bond Index, the current yield indication is 5.45%, which is still slightly lower than a high dividend REITs portfolio can offer.”
And he said that REITs offer diversification. “REITs can offer diversification in terms of asset classes, because historically, the sector has a low correlation with major asset classes such as equity and fixed income. And also, within the spectrum of REITs, you also get a diversified portfolio of different properties as well. You can have the retail and office, which historically represents a huge portion of the REITs market globally, but also some relatively niche, but growing segments such as logistics centres, data centres, hospitals, even retirement village, these kinds of assets tend to have a relatively stable income and the business model tends to be relatively non-cyclical.”
He added that REITs can offer inflation hedge as well because the value of property and rents tend to increase as inflation increases. “And we are quite optimistic because the sector is likely to benefit from the post Covid-19 rebound as economic activity accelerates, particularly if the vaccines work.”
In general, in their search for yield/income, how would you characterise your HNW/UHNW client appetite for private/illiquid debt or equity assets
Growing very fast 8%
Growing gradually 50%
Same as before 28%
Less than before 14%
FMP in favour still
A senior banker pointed to the attractions of FMP or fixed maturity products, which they explained had enjoyed a great run this year. “There has been a sort of tsunami of FMP products in the market, but there is some rethinking of the kinds of risk-reward profiles and what risk wealthy clients are willing to take and what income or yield or profitability they should see for any incremental risk. So, we see some interesting diversification going on where clients here in Asia are starting to look at global EM in the investment-grade space. We also see a lot of people starting to look at where they might need to look at correlations, resulting in more clients looking increasingly at private assets, such as private credit, private lending, where they get paid more for being locked up.”
In general, this expert added, they are seeing more clients, wealthy and institutional, taking a good look at portfolios and being open to the types of conversations that they probably have not explored for the last three or four years.
China in sharper focus…and greater demand
Another guest highlighted the virtues of China fixed income. “The market has now started opening up and investors can buy through QFII and RQFII, and now Bond Connect enables them to access the China market. The market is so huge that investors are yet to fully cover all these different sectors and industries and there is a large component, which we think investors should spend more time on, including technology and pharmaceutical that will help investors to more diversify or balance their risks from the global bond market,” he opined.
He explained that his firm’s strategic approach is focused on China as an emerging market, Belt and Road-related, and also the Asian region. “We also have great expertise and strength in China ‘Green’ as one of our key areas of strength, and this market has been growing tremendously for the past two years, with massive potential for growth as investors of all types diversify their green bond portfolios.”
China Green beckons
China ‘Green’ he elaborated, can be seen as linked to SRI and ESG, but with a specific focus on green projects, green credit, those borrowings and lending with green types of certification in China. “This is a fairly new area,” he explained, “but it has grown very quickly very rapidly, and we foresee there will be lots of opportunities in this area as we have seen lots of these kind of new projects in renewable energy, in for example, this global green projects relating to power plants, and in terms of green transportation and vehicles. These will be exciting and interesting developments and will contribute considerably to the environment as well.”
Expert Opinion - Dr Sean Chang, Head of Fixed Income and Cash Management, Ping An of China Asset Management (Hong Kong): “The China currency appreciation trend could continue. Other Emerging Market currencies have relative value and opportunities ahead of the major recovery in fundamentals and with technical policy support. We are in favour of the dollar bloc only when yield starts unwinding due to any stagflation condition.”
Expert Opinion - Christina Kautzky, Head of Distribution for Asset Management in Non-Japan Asia, Credit Suisse Asset Management: “In an environment in which investors big and small are rethinking what “risk-reward” means to them, global emerging markets corporate bonds are an area of focus, in particular, the investment grade space. This diversifies beyond the traditional home bias we see from many regional investors, and offers an often higher yield without having to move further out on the risk spectrum”
Expert Opinion - Laurent Lequeu, Head of Portfolio Management, Lumen Capital Investors: “China is the only major economy that still offers positive real interest rates, solid economic growth, and limited risks social breakdowns. This makes the Renminbi Chinese Government bond the new ‘risk-free asset’.”
He added that the high yield sector is another of the convictions that his firm has, given the global bond yields being so very low. “We don’t foresee US interest rates rising in the foreseeable future, so we think that the China high yield market is one that people have to focus on, where you can add more alpha.”
Carefully does it…
The same expert commented that in the past, investors would pay a lot of attention to the default risk in China. “We do know this is a huge market, and there is a percentage of the universe of debt in China that will go into this kind of restructuring and default, it seems unavoidable. However, as long as those default rates are in line with the global default scenarios, we think that it is still manageable, and investors should rely on like us to help them to analyse and select the credit picks in this credit market universe.”
He explained that the Chinese credit market consists of thousands of credit instruments, with a vast amount in state-related bonds. And within the corporate bonds categories,” he observed, “we could classify them as perhaps 50% to 60% high yield, but the rest are sovereign related, like the SOEs and the local government or municipal. In short, this market cannot be underestimated. It has a very high potential to help investors continue to search for income and also attractive yield in the current situation.”
Expert Opinion - Dr Sean Chang, Head of Fixed Income and Cash Management, Ping An of China Asset Management (Hong Kong): “Allocation into areas of EM, HY and Green will provide investors with diversification. Credit issuances are expected to grow significantly ahead of the global recovery from the pandemic. In particular, we are positive on China, which is expected to recover earlier than other countries where the pandemic has worsened.”
Expert Opinion - Laurent Lequeu, Head of Portfolio Management, Lumen Capital Investors: “The Regional Comprehensive Economic Partnership (RCEP) will firmly anchor trade and standard-setting power in Asia. It will help China to ‘de-Americanise’ its supply chain. It also opens new doors for China’s close trade partners in the region like Korea and Vietnam. Vietnam’s fixed income market, while still small, offers diversification prospects for long-term investors.”
China and ETFs combined
Adrian Chew picked up on both the ETF and China themes, explaining that his firm had recently listed on the Singapore Exchange an ETF that tracks the pure Chinese onshore government bond market.
Expert Opinion - Adrian Chew, Vice President, Sales and Product Strategy (S.E.A), CSOP Asset Management: “From listing to today, we have actually achieved an AUM of USD1.1 billion already within a very short period of time. This ETF provides easy access for all types of investors around the world, and because of the strengthening of the renminbi plus the weakening of the US Dollar is even more appealing.”
He reported that China government bonds right now have a huge spread above US or Japanese government paper, in fact the widest for over 10 years. “And this ETF is also so popular because it is traded in both Singapore and US dollars, which means the price appreciates as the renminbi strengthens. This tracks only the pure government bonds, it does not track SOEs or other state-related debt. So far, there is no case of Chinese government actually defaulting if carrying the Chinese government guarantee.”
The choice of Singapore, he reported, was due to the depth of the asset management industry there, and the appetite for ETFs. The ICBC CSOP FTSE Chinese Government Bond ETF, he concluded, has been a stellar performer to date since listing.
The Hubbis Post-event Survey
Hubbis asked delegates their views on the world of fixed income and credit as this relates to their Asian HNW and UHNW investor base. We have summarised their very valuable perspectives here.
In brief, in relation to debt/fixed income, do your HNW and UHNW clients in Asia today prefer the public debt markets or private debt markets, and why?
- “Still the public debt markets and mostly through active fund management.”
- “Both, but the majority on public debt.”
- “Private debt markets look more attractive.”
- “Public debt markets because most of our clients are retail bank client with little experience in private debt.”
- “Clients mainly prefer public debt markets for liquidity.”
- “A mix of both in order to diversify.”
- “Public debt markets for cost and liquidity reasons.”
- Public as background information is easily accessible.”
- “Public debt preferred due to its availability, diversity and liquidity.”
- Private, it offers higher yields.”
- “Public debt in general as it is more easily accessible with more analysts providing the research coverage.”
- “The risk/rewards in the public debt markets have been radically skewed due to (pretty much global) zero or negative interest rate policies. The sovereign balance sheets have grown at record pace and there is little or no chance of a recovery or tax regime which will enable the governments to repay the debt. The only hope they have is monetary debasement through inflation, but that may or may not be forthcoming. Japan has been waiting 30 years for inflation to show up and it hasn’t. Private debt markets are precarious, especially if the deployment is across borders. The primary challenge is charge perfection. Funds designed to undertake such activities are a bit better placed, but one needs to be highly selective. There is no secret sauce to deploy money in the fixed income space. It is a very evolved and, in-fact a leading market/ indicator. My clients have chosen to diversify away from investment grade fixed income into REITs and equity holdings in strong FCF companies with USD 10y + yields. The logic is that REITs will provide a good inflation hedge and some headroom for switching to traditional fixed income if inflation were to show up and companies with good FCF and EBITDA performance are likely to be more stable and will be able to maintain payout ratios through business cycles.”
- “Public mostly, this year especially going into Asian fixed income/FMP.”
- “Public debt market: traded actively, market prices are readily available, quality credit ratings, less price volatility risk.”
- “They prefer public debt markets, mainly because the public market provides more information and regulation, so that they have more confidence to invest.”
- “Both, to balance the risks.”
- “Public debt markets due to high risks in the present market scenario.”
- “My clients are both interested in public and private market. They tend to hold the bonds to maturity. What they concern most is the yield and safety of the products.”
- “Investors are open to both depending on opportunities. Public debt for stability, but they are gradually opening up to private equity offerings.”
How would you characterise appetite for leveraging fixed income and debt holdings?
- “Very little amongst my clients.”
- “It is preferred under this low interest environment and low borrowing costs are favourable towards leverage on investment grade bonds for clients.”
- “Moderate appetite, leverage of perhaps up to 25%.”
- “Allocations may be made to active managers who are using leverage, however there is little leverage appetite for the portfolios that are managed on a discretionary basis, or by advisory clients.”
- “Less interest now in leveraging fixed income as clients are getting more cautious towards leverage in general.”
- “Insatiable appetite given the vast increase in liquidity and low cost of borrowing.”
- “Not that advisable.”
- “I would say that the appetite is rapidly declining with regards to leverage. The credit spread charged on borrowings by private banks outstrips the cost of funds by quite a margin. In such an environment, a leveraged investor is arbitraging his own credit spread and instrument credit spread against the issuer credit spread. It simply does not work. It is not immediately apparent in most cases as the private banks works on LTV, but given the flat curve and the historically tight credit spreads, smart money is moving out of the leverage game.”
- “The appetite is still there but internal rules have been stricter than before and hence the leverage ratio has gone down.”
- “Leveraging fixed income and debt is the investment concept to use the difference between coupon and cost of fund. Due to very low cost of fund conditions, a lot of clients enjoy leverage on fixed income products these days.”
- “Leveraging but maximum 30%.”
- “It used to be more aggressive, but tamed after March 2020.
- “Medium interest. The leverage is to magnify potential returns, yet cautiously, keeping enough liquidity especially in periods of high uncertainties (pandemic, geopolitical, etc.), as now.”
How would you characterise appetite for more complex/sophisticated/structured debt/fixed income?
- “Very little at a retail level.”
- “Less interest because generally investors are lacking in product knowledge and are scared of structure debt after the global financial crisis and then the pandemic.”
- “Demand is limited for more complex fixed income product for our HNW clients.”
- The interest has increased due to very low yields in the traditional fixed income space, but most clients still shy away from more complex structures.”
- “Little appetite. It is not really preferred to take exposure to complex and sophisticated fixed- income.”
- “Gradually increasing with a better understanding of risks and improving risk appetite.”
- “Complex structured debt is not an ideal instrument for the retail/ HNW/ UHNW market as a direct investment. It is more suitable as a fund investment thesis focused on yield. We have mostly seen such structures been offered in the real estate space. The IRRs are attractive, but the risk is also substantial due to the ‘performance risk’ element attached to the issuer.”
- “For some PBs, clients tend to get more return this year from structured products. Appetite is there but mainly being influenced by the sophistication of client knowledge in the area.”
- “Robust demand.”
- “Due to the low interest rate conditions, there is demand from clients for higher yield products with more complicated structures.”
- “We are seeing more demand for multiple currency exposures and hedging options on currencies.”
- “Not so much as clients preferred simple clear debt instruments.”
- “As long as the yield versus risk is in the right proportion, there will always be clients with appetite for it. in fact, clients with legacy shareholdings seek complex structures to protect from unforeseeable downturns.”
Real economy income strategies
A different perspective on the hunt for yield came from panellist Carlos Gonzalez-Florenzano of Lyra Capital, who highlighted a strategy the firm had launched three years ago that centres on global trade finance, as a means for investors to participate in the real economy whereby the firm lends money to professionals who allocate the capital to SMEs across the world to finance commodity transactions. He explained that his firm lends the money it raises from investors to those companies against the full collateral of the exported goods, resulting in a very low volatility strategy, delivering 5% to 7% annualised returns net of fees, and with volatility of below 1% and very low correlation to traditional assets.
Expert Opinion - Carlos Gonzalez-Florenzano, Portfolio Management and Wealth Management, Lyra Capital: “Trade finance is a direct lending strategy within the private debt space that sits favourably within the risk spectrum of income generating asset classes and arguably should be of particular interest to yield seeking portfolios.”
Gonzalez-Florenzano acts as Portfolio Manager of the Global Trade Finance Fund. “Right now the fund consists of 15 investments,” he states, reporting that Lyra offers private bank clients (accredited and qualified investors) access to an asset class that was dominated by institutional investors; the fund’s portfolio requires a minimum initial investment of approximately USD10 million versus a minimum ticket of USD100,000 for the Global Trade Finance Fund.
“This is a bespoke credit strategy in the trade finance area,” he reported, “linking to the real economy and the strategy consists of financing commercial transactions at all stages of the commodity and goods cycle, from production processing to delivery of goods. We do that via short term and medium-term loans that are secured to SMEs basically across the world. Accordingly, with that financing, what we’re doing essentially is to enable the movements of goods across the border. The primary source of security is the underlying commodity, and in some cases, we add additional collateral to mitigate the downside risk.”
Weighing up exposures
He added that the weighted duration of the portfolio is currently approximately six to seven months on a weighted average. “And what is interesting is that it also offers low sensitivity to the changing interest rates because those loans are actually maturing on a monthly, quarterly and six-month basis. This means we can re-price those loans according to the maturities of these underlyings. Right now the fund consists of 15 investments in funds and direct notes. And it represents basically 2500 loans across 350 counterparties. That is pretty significant diversification.”
Another banker commented on the declining appetite for leverage, and remarked that both the private banking industry and the asset management industry had become a lot more sophisticated in finding ways of creating income solutions and offering this to clients in a way that is both safe and diversified.
“When I talk about risk, I mean that with a risk-free rate in US Dollars around 1%, then anything you do to get a return above that, you are taking on varying types of risk, credit risk, duration risk, or even regulatory type risk. For example, one very popular area, which has again waned a little bit in popularity, has been to invest in hybrid securities, different parts of the balance sheet in especially financial institutions, so CoCos and funds of CoCos. The yields on those remain pretty interesting, but it’s another dimension of risk, especially when conditions change, as they have done this year, and we have seen that things can change pretty quickly.”
Asian and EM debt appeal
Nevertheless, he added that there are areas still within fixed income, such as within Asian fixed income or more broadly emerging market debt, where there are good returns without giving up too much in terms of quality.
He explained that in the private credit space, his bank sees quite a lot of opportunity, but that as well as credit and counterparty risk, there is execution risk with these particular strategies, and that must be borne in mind. “There are still plenty of opportunities within public markets, even in equities, in order to get, with a reasonable amount of leverage, a leveraged return of 4% to 5%. And that is typically the kind of levels that the clients will be looking at in order to get income. If they want to get returns of, let’s say higher single digits, then definitely they’ll have to go into the private space today, and we see a number of strategies, some linked to real estate strategies in specific markets, but usually very niche opportunities, so clients should not have a very high proportion in their portfolios, and they must be approached carefully, and we must ensure diversification.”
He added that as a general rule there had been more interest in recent years in funds rather than individual asset allocations, with FMPs a reasonable option as they stretch out generally two to three years and that is a perfectly reasonable time frame for taking liquidity risk on those products. And there is also a notable use of derivatives in the private banking world to sell volatility in the form of structured products to produce income. “I would say that [those two areas] are in close competition this year, we have seen a wide variety of products.”
Dialogue and client-centricity
Another banker observed that compared with a decade ago, there is far more dialogue between the providers of the products and the investors. “There is a more partnership type approach to solving needs and expectations,” they remarked, “and we see that clients feel like they’re being listened to, and that is one key reason that FMPs, for instance, have been so successful. And we have seen private credit becoming more successful in the region as investors like to feel like they have decision-making on these things, that they have some skin in the game, they like to understand sort of what’s underneath the hood on these products. Gone are the days of the 40:60 portfolio.”
Expert Opinion - Christina Kautzky, Head of Distribution for Asset Management in Non-Japan Asia, Credit Suisse Asset Management: “In large part, innovation in the industry is born out of close partnership and collaboration amongst asset managers, private banks and their end clients. The industry has moved past a one-size-fits-all approach to investing, and we are delighted to see our core capabilities take on new dimensions and fulfil client investment needs.”
Expert Opinion - Laurent Lequeu, Head of Portfolio Management, Lumen Capital Investors: “The recent one billion Renminbi missed debt payment by a state-owned enterprise from Henan (Yongcheng Coal & Electricity) shows that investors must be selective when picking Chinese issuers and focus on high quality credit.”
They added that in general terms, it is positive that different wealth managers or different private banks have a different view on some of these same ideas or topics because it gives clients different perspectives. “It leaves a lot more room for research and for strategy, for really understanding an asset class or a product and those are things that are increasingly important because we are in a brave new world,” she said. “I think it’s incumbent upon all of us to sort of blend the discussions, the honesty, the transparency around the product, and new and innovative ideas into something that really works for clients and works for our partners.”
Opening up the world with ETFs
As to priorities for the year ahead, an ETF expert pointed to the continued rollout of new strategies and promotion of existing offerings. “We currently have a broad investor base of both institutional and private clients, depending on the products, for example a high growth product focused on the China internet sector, the China Dragon Internet ETF, and meanwhile, we also have income-generating products, which is the high dividend REITs, we also have our crude oil ETF, which is one of the largest oil ETFs listed in Asia. So, depending on different exposure and different design that we provide, we have different investment mix. On the REITs ETF, for example, we have seen discretionary portfolio managers including wealth managers and even insurance companies use it for tactical asset allocation, especially recently using it to capture the post Covid-19 rebound. We have also seen them use it to enhance their sector allocation by complementing the core positions that they are currently holding because REITs ETF is first and foremost an equity ETF, a thematic ETF, and then because it’s also an income generating product, we have also seen investors using it for short term liquidity management.”
Hubbis was keen to find out form our delegates what they are seeing in terms of demand from their wealthy Asian investors as they seek income from the equity markets, either public and liquid or private and less liquid. This is what we discovered.
Are your HNW and UHNW clients seeking income from equities, and if so, are they targeting public or private assets?
- “Public sector, with good dividend payouts.”
- “Mostly public assets as they don’t have much access to private assets.”
- In 2020, HNW/UHNW clients purchase equities mainly for capital appreciation and heavily skewed towards growth stocks in the public assets.”
- “More in the public arena for now but we see a growing interest in private markets.”
- “Yes, we are seeking income from equities. Capital gains or distributions via dividends are fungible concepts in our mind. Most of the investments are therefore focused on targeting public markets. We have lowered our market capitalization floors in search for strong FCF and EBITDA. Also ventured into more niche sectors to find quality. Large cap investing has predominantly been focused on broad market or sector ETFs.”
- “Most of my clients think fixed income products are too expensive and they are searching for equities products targeting public assets.”
- “The focus tends to be more on capital growth opportunities.”
- “They are targeting blue chip firms in the public markets.”
- “Yes, they have shifted their interest from equities to fixed income and they targeted both public and private assets.”
Another ETF proponent added: “I agree with all that, and will add that the ETF is actually a very transparent and liquid and low-cost option for private investors to get into the underlying basket of stocks asset class that particular ETF is tracking. What we are seeing in Singapore among the region is that the retail investors are getting more and more savvy. Most of them, for example, Asian investors are actually looking for any ETF that actually provides some form of dividend, some form of income, some kind of yield. And that’s the reason why in Singapore, REITs are actually quite popular because they give the investors here in Singapore regular dividend and regular income. Then the concept evolved into a basket of REITs through the REITs ETF. And that’s become more popular because with a small ticket size, retail investors could just get into an ETF that tracks a basket of REITs. And then the idea of the China Government Bond ETF has seen a lot of institutions in, as this bypasses the obstacles of setting up an account that tracks into onshore China fixed income, bringing appetite from institutional or sovereign wealth, financial institutions and family offices using this ETF for easy access to the second world largest bond market.”
The Hubbis Post-event Survey
There is a seismic shift taking place in the global allocation of HNW and UHNW portfolios amongst investors in Asia. As China’s start burns ever brighter, and as the West (including Japan) remain mired in chronic debt and economic uncertainty, we can see a new world emerging in terms of portfolio allocation, as more and more of the immense private wealth in this region is skewed towards the region itself. This is not to say that the US or Europe are forgotten, but the balance of power is clearly shifting. This is a brief summary of some of the views from our delegates.
Which particular two markets or regions around the world would you focus your clients on for income and yield, and briefly why?
- “EM and especially Asia including China.”
- “Asia and US.”
- “Asia and Europe.”
- “Asia and EM due to its higher yield and better growth.”
- Asia and in particularly China with the yield differential in the developed markets.”
- “EM debt, as it presents better risk/return than developed market debts.”
- “China for equity and fixed income, as the economy recovered swiftly from Covid-19 and is set to be the largest economy very soon.”
- “Chinese government bonds are of increased interest for their relatively high yield compared to other large economies/economic zones.”
- “Asia and US market focus on income and yield. Our clients are familiar with home markets in Asia and also want to participate in world’s largest and most liquid markets in the US.”
- “China and ASEAN given the yield pick-up and improving credit scenario.”
- “The US and China.”
- “US due to it being our default portfolio currency. European markets would be another contender with particular focus on the Nordics. The proportion of institutional investors in the European market demanding yield is relatively higher than the US (at least that is the perception). Therefore the mid cap and large cap segment is very dividend conscious.”
- “Asia and the US.”
- “My clients think China and the Asian region will be the right location to look for better income next year. They believe these two locations will have high economic growth and better yield accordingly.
- “The US and China. The United States is the most mature financial market with the most complete financial system and the most investment options. China is the fastest growing developing countries, offer opportunities to invest in a lot of promising industries and companies.”
- “Vietnam - the most compelling investment story in Asia if not the world.”
- “China and Europe, offering good yield and risk balance.”
- “Not so much markets or regions, but asset class sectors. Infrastructure type assets, and subject to some close monitoring, REIT type investments.”
- “Hong Kong and Singapore. The accessibility to financial products is widely available.”
- “China and India. Loads of opportunities, these upcoming markets are yet to mature.”
- “Only China for me, as the yield is higher and the risk is acceptable.”
- “Asia and Europe, while the US is too expensive.”
- “The US - most mature markets with the most income and yield products. And China - many potential good cheap opportunities and outstanding growth vs other markets.”
China – now the first name on the team sheet?
The final word was also on China, fittingly. “We think that China is going to be so exciting in the coming 12 months’ time period; we are foreseeing the rebound and also the recovery in industrial activity that would be quite quickly reflected in the earnings, in the economic figures, and also including reflecting in the investor sentiment.
He added that aside from credit and sectors of strong interest in the equity market, the real estate sector should not be ignored, as the largest property developers have been refinanced and also have improved their liquidity through the central bank and also other regulated policies. “Now that these major developers have strengthened their balance sheets, we are quite comfortable to continue to invest into this particular sector. But including the other sectors that we focus on, they will combine to offer investors a more diversified and optimised risk portfolio.”
“Last but not least,” he explained, “our emerging market strategies, where we focus on credit selections among those sovereign related, municipal government-related, credits and where we spent a lot of time analysing them and looking at how, for example, the Belt and Road strategy could help the associated companies to enhance their revenues. So, we think that in terms of China high yield Renminbi denominated credit, green-related China bonds, and also the emerging markets with the focus on China and other China-related emerging markets, these approaches will help investors to take a very granular positioning for the future.”