Meeting macro level challenges head on at the Hong Kong 2022 Buy-Side Forum

What kind of risk is of most concern in Hong Kong right now? How is it impacting the market, and how can asset managers protect their portfolios? When is the right time to invest in China? How can quantamental investing help your firm? What impact will global standards for ESG reporting have on firms in Asia? How do you balance financial performance and the ESG mandate? What is double material materiality, and why is it important?

These were some of the topics discussed by Bloomberg thought leaders and global fintech industry experts at the recent Bloomberg Hong Kong 2022 Buy-Side Forum.

Quantamental and sustainable investing were also high on the agenda at the in-person and virtual event, which took place on 26 October and was attended by more than 200 financial market players. We summarize key themes from the day’s panel discussions below.

Macro challenges point to value of multidimensional investment

There was resounding agreement that the global market is volatile due to sever macro level factors. These include geopolitical influences, rising inflation, and supply chain problems.

“What we’re seeing in markets are symptoms that point to a regime change,” said Thijs Aaten of APG Asset Management Asia. “We’ve been used to 30 years of interest rates slowly moving lower. We’ve relied on the negative correlation between equities and fixed income. I’d argue that we’ve outlived that trend.”

The audience said it was most concerned about ‘Geopolitical risk’ in a poll. Approaches shared by panellists for managing geopolitical risk included maintaining liquidity of assets, for example by moving collateral to cash markets, developing thematic investment strategies, and having a scalable investment platform.

The panel also recommended cultivating agility through familiarity with newer, technology-enabled types of trading such as fixed income trading, portfolio trading, and peer-to-peer trading.

Another poll canvassed the audience on when is a good time to invest in China’s stock market, to which 60% of the audience remained undecided.

“China onshore fixed income market provides investors with a good diversification asset class during the volatile markets,” said Dennis Fok of Mirae Asset Global Investments. “They may not be aware that, when we talk about the Bloomberg Global-Aggregate Index, significant index weight is composed of China CNY bonds and they have been performance leaders within the global index universe this year.”

Automation and quantamental investing sees data transcending systems

The ongoing relevance of securing new, relevant and secure sources of data, and having the technological tools and talent to work with it, were widely recognized.

‘Extracting better quality information and insights’ was closely following by ‘Improved scale and efficiency’ in an audience poll about automating front office investment research.

Mark Konyn of AIA commented that today’s front office systems are much more focused on consistency and multiple outcomes than those of 20 years ago.

“Data is the most important component, and I think it relates directly to scaling efficiently,” said Konyn. “We spend less time cleansing and cleaning and verifying data. We know the true source and we can then populate our systems consistently. That brings scale, and then better quality.”

Freddy Wong of Invesco said there were two big focuses for the Steering Committee on Bond Market Development: how Hong Kong can further expand the scope to engage with China, and electronic trading in the form of an ecosystem for digital currencies.

Panellists identified many uses for machine learning and automation, from performing large scale analyses and deriving insight from unstructured data sets, to aiding with compliance, and creating a competitive edge. They agreed that “data transcends systems”, and that automation cannot be successful without people.

Asia is following Europe’s lead on sustainability

Panelists agreed it’s an interesting time in Asia, with regulators and asset managers alike starting to adopt a lot of the sustainability initiatives being role modelled in Europe.

There was optimism about regulators’ exploration of consolidating disclosure standards and achieving global consistency, but also an awareness that different jurisdictions are at different stages in terms of implementing ESG reporting standards.

“We welcome the development of a global baseline for sustainability and climate reporting, which is what the International Sustainability Standards Board (ISSB) is working on” said panel moderator Vicky Cheng of Bloomberg. “We believe it is important the ISSB standards take into account existing local ESG reporting regimes, and to work with local regulators to promote convergence. We believe in transparency, consistency and comparability.”

Double materiality was acknowledged as of growing importance, for investors and companies alike. Victoria Mio of Fidelity International defined it as companies needing to evaluate the ESG risks that they face, and to evaluate how their operations will impact society and the environment.

The panelists shared various strategies for balancing financial performance and the ESG mandate, including acknowledging and prioritizing the Social and Governance aspects of ESG alongside the dominant discourse of the Environment.

One actively promotes the notion of a just transition to core companies in their portfolio and has introduced an engagement program to highlight and encourage decarbonization.

Others highlighted focusing on diversity and stewardship, the notion of “common prosperities”, the importance of independent review for measuring performance, and the value of engaging with the top-down policy driver: governments.