Bloomberg Professional Services
The Asia-Pacific region continues to lure investors, attracted by a region of dynamic innovation and abundant opportunity even as capital markets in the West boom.
Investment is on the rise again, particularly in Hong Kong and South Korea, following the chilling impact of the pandemic as the region’s companies jostle for share of new markets and products. Capital is also being drawn in as foresighted regulators help to create a welcoming environment for foreign capital.
Nevertheless, the continent has its challenges. Like the rest of the world, the Asia-Pacific is learning to adapt to a global economy that has been radically redrawn in the past few years. At the same time, it is having to deal with home-grown challenges, particularly as China – the world’s second-largest economy – works its way through a period of softer-than-usual growth.
As these competing forces reshape the Asian economic landscape, asset owners and their managers are capitalizing on change, aided by powerful new data-driven technologies and new investment theses.
Health check
To gauge the importance of the region, look no further than Hong Kong, where Bloomberg’s Asia-Pacific Buy-Side Forum held its annual health check of the continent’s economies and investment opportunities.
The southern Chinese city has rebounded from the pandemic through a combination of good economic management and pragmatic regulatory measures, the forum heard. Hong Kong’s asset management industry has been boosted by the extension of cross-border investment schemes with China, which a poll of forum attendees established remains investor’s prime focus in Asia. In fact, Hong Kong’s continued role as the Asian entry point for huge amounts of foreign capital has earned it the soubriquet of “super-connector.”
Foresighted oversight
Hong Kong’s regulators have been pro-active, too, in developing the city’s already flourishing capital markets by enabling the creation of virtual asset investment vehicles and encouraging the creation of exchange-traded funds, which saw turnover growth of 20 per cent last year.
Leaders have also seen opportunities offered by the huge wealth transfers that are expected in the coming years, laying the foundations for wealth management firms and family offices to set up in the city and capture some of the estimated US$18 trillion that will be passed between generations by 2030.
As Hong Kong’s population ages, its asset managers are nurturing the city’s pension and insurance sectors. Following a decision by the government, more firms can now participate in the management of the HK$1.2 trillion collected in a territory-wide mandatory provident fund scheme.
Region-wide optimism
This macro-optimism is replicated across the region. The forum heard from speakers representing interests in India, Japan and South Korea that there is an Asia Pacific-wide effort to support interconnectivity between national markets and to take advantage of new trends, which include investment in assets linked to the net-zero transition and associated with environment, social and governance factors.
Further, the importance of private markets is also being recognized as the share of global investment shifts from public companies.
Challenging environment
The picture, however, isn’t entirely rosy. When asked to offer one word to describe their perception of the Asia-Pacific investment landscape, attendees overwhelmingly chose “challenging”.
Volatile markets, a bias towards low-risk investment strategies and continued compression of fees as low-cost passive funds flourish are making life difficult for asset managers in the region. Also, a deficit of trust in Asian markets and their regulators, compared with those in the West, is mitigating against fully leveraging the opportunities the region offers.
On top of that, their activities are being buffeted by the geopolitical tensions and the impacts of deglobalization that are impacting the world’s economies.
Finding solutions
Forum guests indicated that they are adapting to this new economic landscape through strategies that are proving successful in other parts of the world: diversification and technology.
Multi-asset investing has become ingrained within large swathes of the buy side as firms seek to hedge against volatility and exploit new markets, including private and sustainability markets, each of which are growing in importance in the Asia-Pacific.
Just as critically, buy-side firms are seizing on the potency of data-led technology, including the use of artificial intelligence (AI). Digitalization has transformed the plumbing of financial markets and having an integrated technology setup is no longer a nice-to-have; as one forum speaker put it, you must digitalize because if you don’t your competitors certainly will.
Virtuous data cycle
Technology has created a virtuous circle of enabling firms to generate and interrogate huge volumes of data that is helping them make better informed investment decisions and automate operations.
In particular, AI is opening up the possibility of mining insights from tricky-to-digitalize information contained in documents, reports and even social media and messaging posts. Being able to gather this unstructured data and combine it with market data, pricing data and other more conventional structured forms of information is seen as the new route to gaining a competitive edge.
Importantly, data-led technologies are also automating middle- and back-office activities, helping firms to reduce costs and shorten the time-to-market for everything from portfolio balancing, trade execution and fund launches to post-trade settlement and regulatory compliance workflows.
A trusted partner
Providing the capabilities to take advantage of these new opportunities is Bloomberg’s suite of tools that are being leveraged by buy-side firms the world over and which are being continually updated to incorporate new advances in processing, including AI.
Asset managers can automate the entire investment lifecycle using tools that complement Bloomberg’s order and portfolio management platforms, AIM and PORT. For over-the-counter trades, including fixed assets and currencies, the risk evaluation platform MARS has been recently enhanced with derivative libraries, collateral management and credit risk capabilities to give managers a full intraday multi-asset risk system.
PMGO, meanwhile, offers portfolio managers real-time, data-enriched decision-support capabilities that has been upgraded with a faster interface to give users greater visibility into, and analytics on, their portfolios.
Work is progressing on enriching these technologies with AI functionality and chatbots that will help accelerate post-trade workflows as the world moves towards immediate settlement times, and empower compliance teams with rule coding that will simplify reporting procedures.
Backed by Bloomberg’s unrivalled datasets that support research, trade and post-trade processing, these tools integrate with the full suite of Bloomberg services giving buy-side users unparalleled control over their investment processes while reducing their total costs of operations, capital and data.