Of taxi drivers and hybrid engines
Asia – the land of hybrid taxi drivers. In fact, I find taxi drivers one of the most fascinating groups of people I encounter on travels. On a recent visit to Taipei, our taxi driver put us (an American, a Briton, and a Hong Konger) to shame with his knowledge of European and US history. He quizzed us on presidents, political developments and legislative approaches from across the globe. Not only did he demonstrate his encyclopaedic knowledge (admittedly he knew a lot more than the three of us), but he was navigating downtown Taipei all the while – a real hybrid.
As someone who spends an extensive amount of time in the region to advise clients’ investment business in Asia Pacific, I often get asked about the tired debate on “active versus passive” investing. I have observed that sophisticated asset managers and asset owners are moving towards a combination of both, rather than one or the other, which is something Northern Trust has been putting forward to clients in the region.
Think about different car engines. Active investment is like a high-performance petrol engine. As the name implies, it takes a hands-on approach and requires investors to act quickly in order to pivot into, or out of, a particular stock, bond or other asset. Of course this demands high-octane resources, and there’s always the possibility of screeching brakes when the situation changes and lightening decisions have to be made.
Passive investment is the low-cost-to-run zero emission electric engine. This requires a buy-and-hold mentality, making it a very cost-effective way to invest. While this approach is very efficient, the ability to capture fast micro moves in a changing market environment means the optimum investing approach is to embrace the qualities of both investment styles. Just like my and many other avid drivers’ wish, a hybrid engine delivering super car performance with low emissions would be ideal.
Speaking of low emissions, a trend I want to highlight is Asian asset owners’ increasing interest in environmental, social and governance (ESG) and sustainability as they realise the benefits of sustainable and responsible investing, such as the positive impact on the environment. We have seen some recent changes in Hong Kong and Japan in terms of stewardship codes and investors not only adhering to them, but implementing them in their ESG strategies.
Another trend I have observed in Asia is investors’ continued hunt for yield outside of the region, particularly into US and global equity and fixed-income asset classes. Asian investors have a keen sense of the geopolitical shifts over the last year, and a desire to better understand the implications of Europe’s challenges and the potential impact of US President Donald Trump’s policies on global trade.
As such, investors in Asia have different perspectives from those in the US or Europe. In the US, there is a sizeable proportion of investors that are domestically focussed and inward-looking. This results in a split amongst US investors: half are comfortable maintaining and increasing their US exposure, while the other half are looking away from the local market and into opportunities to invest globally.
On the other hand, European investors have a strongly outward-looking perspective, with considerable focus on opportunities to invest in the US and Asia. Likewise, Asian asset owners have growing levels of interest in the US and Europe, particularly when it comes to understanding the implications for China. A case in point being how China can continue to develop as a consumer hub for Western companies while driving its imports and exports.
We can see a story of continued growth and maturity in China and emerging Asia. Countries in the region are leaving the “developing” economy tag behind as we observe increased economic activity, especially in China. Our on-the-ground experience in Asia Pacific markets provides us with sound local market insights to help our non-Asia Pacific clients understand the opportunities at hand, for example in China’s technology and infrastructure sectors. These can be underestimated given both sectors are very domestically focussed, while their Western counterparts are seen as the big players (think Silicon Valley).
We are all crazy about drones and US tech companies, but I wonder how many Western investors have heard of their Asian equivalents (did you know that in China, you can book your doctor’s appointment through an app?). That is why I am highlighting the increasing levels of e-commerce to our clients, as they represent a great opportunity, both for Chinese tech companies to attract investment and for regional and global investors to explore.
With today’s advancements in technology, we are already witnessing the rise of autonomous cars. Hence, I urge you to jump into taxis with actual drivers while you still can. You never know who you might find in the driver’s seat.
Wayne Bowers is CIO and CEO for EMEA & APAC at Northern Trust Asset Management