A deep immersion in Asia has given David Pong, a global capital markets and investment professional, an appreciation of the region’s diversity as well as the challenges and opportunities it presents for high-net-worth investors.
Born in Korea and raised and educated in Canada, Pong began his career in Toronto in asset management. He became a leveraged finance banker in New York and then relocated to Asia, where he spent the past 15-plus years in three hub cities: Seoul, Singapore and Hong Kong.
Pong’s most recent position was head of debt capital markets and head of sustainable finance for Asia-Pacific at SMBC Nikko Securities Inc., based in Hong Kong. Today he divides his time between Canada and Asia, advising clients on multinational cross-border investment and capital-raising strategies.
Canadian Family Offices asked Pong for his thoughts on what investors should look for in Asia, the pivot away from China and some good country plays in the region.
What are your views on investing themes in Asia since the COVID-19 pandemic?
In my opinion, the best framework for medium- to long-term investment is what Brookfield refers to as the 3Ds: digitalization, decarbonization and deglobalization. I would add a fourth D: demographic divergence.
Where are the opportunities in digitization?
While technological innovation and leadership are nothing new in Asia, the developments have been more incremental until the recent emergence of artificial intelligence, which is a game changer.
Beyond AI, opportunities exist in various other technology-driven areas such as digital payments, fintech and healthtech, given favourable demographic factors. As Asia moves beyond its manufacturing strengths and further up the innovation curve, there should be attractive prospects to invest in in this evolution.
In light of Asian governments’ strong commitment to sustainability targets over the next several decades, we will see abundant opportunities in the energy transition and infrastructure sectors.
There are other areas for important sustainable investment that investors are becoming more interested in and optimistic about, such as biodiversity.
How is deglobalization affecting the region?
Asia has seen a surge in intra-regional trade, particularly in the China-ASEAN and India-ASEAN trade corridors. Various countries stand to benefit from this trend, such as South Korea, Japan and Taiwan in semiconductors, given their well-known leadership in this sector.
Perhaps less well-known is the importance of Indonesia in electric vehicles, given that it holds the world’s largest nickel reserves.
Why is demographic divergence important?
Life expectancy is rising and birth rates are falling, especially in advanced Asian countries such as South Korea, Japan and China. This presents not only daunting economic challenges but also compelling investment opportunities.
Demographic change will vary significantly in magnitude and pace, depending on countries’ actions and the policies implemented to manage it. And the dynamic may be the opposite for countries such as India, Indonesia and Vietnam, where populations and workforces are still young and growing. Hence, the divergence.
What themes do you see in financial services and banking in Asia?
The financial services industry in Asia, especially the banking sector, has been undergoing significant transformation in recent years.
Asia has attracted robust investor interest in the rebalancing of lending away from traditional lenders toward alternative, private players, or direct lenders as they’re often called.
In wealth management, family offices and the ultra-wealthy have been drawn toward establishing a presence in Asia, especially in Singapore, given its safe-haven status. This helps them to not only diversify where they hold their money, it also provides a gateway to broader investment opportunities in the region. They’ll often work with intermediaries or advisers like me who are familiar with the region to help facilitate their access and presence there.
Within the high-net-worth and family-office segment, especially among younger generations and newer wealth, there seems to be keen interest in opportunities within technology-led themes, including fintech, biotech, healthtech and cleantech.
Private markets are definitely in focus for many investors, including family offices. Indeed, many of the tech-related opportunities that wealth-management clients are looking for are coming in the form of private equity.
Challenges exist in the complexity of managing the different financial, legal and regulatory systems across the various jurisdictions within the region. This requires more localized expertise to navigate.
Has there been a pivot away from China toward other Asian countries?
Sentiment around China and its economy has been overwhelmingly poor in recent years, given persistent negative headwinds and headlines. There certainly has been a trend toward what I would call a rebalancing at the expense of China, not only from investors but also from financial intermediaries and multinational corporations. This does seem to be levelling off somewhat in recent months, given expectations of economic stimulus from the Chinese government.
Where are some other opportunities in Asia?
Global investors as well as multinational corporations are increasingly looking to alternate markets for diversification and growth. With sound analysis, selection and localized advice, there are certainly lucrative opportunities across all of Asia.
But I believe the greatest prospects are likely to come from the more emerging Asian markets, India and Southeast Asia, or ASEAN, in particular.
Why is India a good play?
India’s global relevance and rank should climb quickly, with more than 7 per cent GDP growth expected this year, and attractive fundamentals, including favourable demographics, a rising middle class, solid structural banking-sector reforms and strong investments being made, both foreign and domestic, particularly in technology and sustainability.
What do you like about Southeast Asia, or ASEAN?
ASEAN is where I’ve focused a significant portion of my time while in Asia. It’s one of the world’s most dynamic and fastest-growing regions, but arguably one of the least known and appreciated. It’s generated above 5 per cent average GDP growth since 2000, and extreme poverty in ASEAN has dropped dramatically during that time.
If ASEAN were a single country, it would be the seventh-largest economy in the world, and it’s forecast to rise to the fourth-largest by 2050. Its population is over 650 million people, larger than North America or the EU, and it has the world’s third-largest labour force, which is young, relatively well educated, digital-savvy and urbanizing. That bodes well for strong domestic consumption growth.
Only about a quarter of the region’s exports are to other ASEAN trading partners. With the greater focus on reconfiguring cross-border supply chains, both globally and within ASEAN, this proportion is set to rise significantly.
What are the biggest hubs in Asia?
Key Asian centres such as Shanghai, Beijing, Shenzhen, Seoul and Tokyo are gaining importance and play economic roles in their respective and distinct areas of advantage.
But I don’t think there’s much of a debate about Hong Kong and Singapore being the two most important and dominant global hubs in Asia. The debate in recent years, especially during and post-COVID, has been about which of the two is larger or more important.
Hong Kong has been the more dominant hub until recently. The 2019-2020 protests and draconian zero-COVID restrictions thereafter tarnished the city’s appeal.
Singapore’s government has done a remarkable job in implementing initiatives and incentives to attract the financial community. Perhaps where the competition has been most fierce is in the fight for wealth management, an area in which Singapore has excelled in recent years.
Should we write off Hong Kong?
I see it as unlikely that Hong Kong will be replaced as an Asian hub. It’s much more likely that it will co-exist and continue to compete with Singapore, which is a good thing. There’s a possibility for both cities to play different and even complementary roles as Asian hubs, leveraging their relative strengths and advantages.
Where do you see potential landmines in Asia for investors?
I see a key, under-appreciated risk in the tendency to approach Asia as a single, monolithic market. In reality, it’s a very diverse one, with highly varied stages of development. With this comes a fair share of complexity and contradiction.
How can that be avoided?
It’s crucial for investors outside of Asia, and even within the region, to have a solid understanding and access to expert advice on local nuances and cultural sensitivities. You need a differentiated, tailored approach if you want to truly capitalize on the region’s upside and diversification benefits.
Responses have been lightly edited for clarity and length.
More from David Pong
Pong chats with Romina Maurino in interviews for Financial Pipeline:
- The risks involved in international investing, and how investors can try to mitigate them.
- The draw of international markets, and how international exposure could provide additional returns and spread out risk.
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