Funds Global – Overall, are you optimistic or pessimistic from a business and investment perspective over the next 12-18 months?
Against the backdrop of 2020 recession and pandemic, we enter 2021 with a mildly positive perspective on the recovery from an investment perspective. We believe that 2021 will be a year of ups and downs, with periods of economic growth interspersed with slowdowns linked to the resurgence of the global pandemic. We do not anticipate an immediate and homogenous recovery, but rather a multi-speed, multi-year recovery scenario.
However, we remain optimistic on the business front, especially with our investors in Asia-Pacific. With the rising trend of ESG and climate solutions, we are definitely seeing a wider adoption of people using sustainability and climate solutions.
I think we’re going to see a continuation of the flow trend. Last year it was a $750 billion year for the global marketplace and while some of that has been contributed to by the pandemic and an increased level of trading and volatility, I don’t think you can attribute too much to it. It’s the trend that we’re seeing, and we’ll probably be sitting here this time next year talking about an increase over the $750 billion figure – perhaps by some way. That goes from strength to strength, so I’m super-optimistic about the direction of the marketplace and ETFs in that.
I’m cautious about where markets are. This year ended 25-30% up on AuM because we took $750 billion in and then there was some mark to market in there, so an amazing year. My concern is whether we could have a year where we have more flow and less mark to market. What’s going to play out in the next 12-18 months in terms of how economies come out of the pandemic and how the vaccine is rolled out – does that make a big difference for people starting to travel again? A lot of those fundamentals will play out towards the end of the year and we’ll have to see where rates go and how the central banks contribute to that story.
I echo the positivity, but I am also cautiously optimistic of the global market amid the pandemic and the geopolitical risks. I am still quite positive on the ETF flow and also the ETF business, especially in this part of the region. We believe that China will be the fastest-growing area in ESG investments over the next few years or so, given the strong support from government in developing an ecological civilisation and also the structural evolution over there.
We are very optimistic about the global recovery and the investment opportunities. We spoke about China, but India’s market is also very interesting. India’s population is now the largest in the world – it has 1.4 billion people and they have a government push to rely less on imports and manufacture more locally. We think they are going to build more on technology such as electronic products, mobile phones, TVs etc, so the investment opportunity there could be prominent due to the humongous size of local consumption. Southeast Asian markets are probably five years behind China, but Covid-19 has been a catalyst for them, so they actually grew significantly on their tech and online platforms, which is again the e-commerce area.
Because of political reasons, lots of luxury brands and manufacturing firms are relocating their factory from China to Southeast Asia, so that benefits them. So, Asia overall could be quite good as an investment opportunity.
I agree there are a lot of structural developments which fundamentally would support our view here. There seems to be a uniform view here on the vaccine rollout, which gives hope that in the next six to nine months we could see a very positive development globally speaking. Last year including China equities to MSCI indices paused – literally nothing increased, but we do think this year that some of the headline news settles and this initiative will continue and that we see an increase, or a path, to a full inclusion of onshore equities into the broader MSCI indices.
The valuation does look expensive in some of the asset classes, so I do expect performance discrepancy or differences between countries, equities and sectors to continue and you will see some performance dispersions in some of the asset classes when you look across multi-assets. We do have a high hope on the structural developments onshore to continue to open up financial markets, the reform on the capital markets to allow access to become easier, and that should trigger continuous investor interest in onshore assets for the long-term.
I am certainly optimistic. We have learned a few things with Covid-19, including that ETFs are quite resilient and they provided actionable prices in the area of fixed income market, the ETFs become the price discovery vehicle.
In Europe we are also now starting to have more ESG ETF products for which there is big demand. In Asia-Pacific, ETFs could be a good vehicle to support climate objectives and ESG. What I would like to see in the future is more activity between mainland China and Hong Kong through ETF Connect, to have more products, and also for Hong Kong to connect more to Europe via cross-listing Ucits ETF products.
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