HSBC sees rising investments from Middle Eastern investors in Asian equities

Asian markets offer investors opportunities to deploy 'big amounts of money', HSBC's head of Asian and Indian equities says

Customers exit and enter an HSBC Holdings Plc bank branch at night in Hong Kong, China, on Saturday, Feb. 16, 2019. HSBC is scheduled to release full year earnings results on Feb. 19. Photographer: Anthony Kwan/Bloomberg
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Investors in the Middle East have a growing appetite for investments in the Asian equities markets, especially those in China and India, despite escalating US-China trade tensions and concerns about an economic slowdown in India, a senior HSBC executive said.

"We are seeing the signs of increasing interest from this region for Asia. There is interest in [equities investments] in India and China in particular and some into the broader Asian region," Sanjiv Duggal, the Hong Kong-based head of Asian and Indian equities  at HSBC told The National in an interview in Dubai.

“These are big economies and they offer a lot of different types of investment opportunities. Some of the big institutions here can deploy reasonably big amounts of money in these economies.”

The US and China, the world’s two biggest economies, have been engaged in a tit-for-tat tariff war that has threatened global economic growth and forced the World Bank and the International Monetary Fund to revise down their projections for world economy this year. Global equities swung wildly earlier this year when US President Donald Trump threatened to further escalate trade war and eventually imposed a 15 per cent tariff on $112 billion (Dh411bn) in Chinese goods on September 1.

There are reports now that the US administration is considering an interim deal with China, which could lead to the removal of the most recent round of tariffs, bringing total US trade levies on Chinese products down to about $250bn.

Although the uncertainty stemming from the retaliatory tariff war will remain in the minds of investors, the market has “discounted the risks” as it went through various scenarios of “deal and no deal”, Mr Duggal said.

Earlier in the year, trade tensions had led to large net capital outflows from China, with investors pulling $49.9bn out of Chinese markets during the second quarter, according to the Institute of International Finance. However, in August investors pumped $1.5bn back into Chinese equities.

“The intensity of [trade war impact on markets] is manageable for now and the market is reacting less,” Mr Duggal said.

He argued that regional investors, be they high net worth individuals, family offices, institutions or sovereign wealth funds, are looking to diversify their portfolios and rebalance assets to hedge risks, which means increasingly deploying capital in Asia, which remains in growth mode.

Investors looking to deploy long-term capital, whether in direct investments, equities or fixed income, have a lot of opportunities in these markets, where large economies like Indonesia, China and India are growing in the 5 to 7 per cent range.

HSBC globally manages assets in excess of $500bn. In terms of geographical split, the Americas account for $106.4bn of managed assets , Europe Middle East and Africa for $255.9bn and Asia Pacific for $145.1bn.

The bank launched a China-focused fund last week that will invest in Chinese A shares. The fund will be registered in different regions to give investors easier access and HSBC is already witnessing “reasonable interest in the [open-ended equities] fund”.

Communications services, telecoms, gaming, e-commerce and emerging technologies are some of the sectors HSBC likes in broader Asian markets.

“We like consumption [related stocks] and within consumption we are looking more at services, gaming and e-commerce, rather than the likes of auto companies,” he said. “We are underweight on financial sector [stocks] …. in the region.”

Until July last year , HSBC was bullish on the Indian market, however, it has cut down its investments in third-largest Asian economy, fearing a credit crisis driven by non-banking financial corporations (NBFCs), commonly referred to as shadow banks in India.

However, Mr Duggal said HSBC has started looking at investment opportunities in Indian equities again as the country's long-term growth prospects remain intact despite a slowdown in the last financial quarter.

Mr Duggal was also bullish on the bank’s investments in Hong Kong, one of the top Asian financial hubs, despite ongoing protests that have rattled the market. HSBC, he said.

Developments in Hong Kong have created a lot of “noise and mispricing opportunities” where some of the good companies were excessively sold off, he said.

“It creates opportunities of us and our clients to buy into those particular names,” he said.