Five asset owner trends that shaped the Year of the Rabbit
Today marks the last working day of the Year of the Rabbit.
The past 12 months have been nothing short of eventful. Interest rates, inflation, safe haven assets, family offices, private markets, fixed income -- these were all the topics that dominated the attention of institutional investors.
Some themes stood out more than others in the current Chinese New Year.
Here is what we thought were the top five standout themes over the past year.
1) SINGAPORE’S SURPRISE AFFECTION FOR GOLD
One of the big surprises of the year was Singapore’s central bank ramping up its purchases of gold.
Typically, central banks in developing markets such as China and India are big buyers of the shiny metal. It was unusual to see developed market central bank to snap up so much gold.
The Monetary Authority of Singapore ended the Year of the Rabbit buying about 77 tonnes of gold, making it the only developed market central bank buyer of gold in 2023, according to the World Gold Council.
It was also among the top central banks to purchase gold.
Another Asian central bank, the People’s Bank of China, regained the crown as the world’s single-largest single gold buyer.
Gold plays a role in diversifying central bank reserves and preventing an over-concentration in US dollars, while offering liquidity in an asset that has no credit risk.
Central banks are expected to extend their gold buying streak in the Year of the Dragon as prospects of further economic slowdown, geopolitical tensions, and political elections in key markets heighten the need for safe-haven assets.
2) MALAYSIAN STATE INVESTORS FOCUS ON LOCAL INVESTING
Malaysia’s triumvirate of sovereign entities -- pension funds EPF and KWAP and sovereign wealth fund Khazanah -- gradually focused on investing locally in the Year of the Rabbit.
All three have made overseas investments previously but over the past 12 months, they have pivoted toward going local.
By all accounts, it started with EPF early in the year, when it was directed by the goverment to increase the proportion of local investments in its overall portfolio.
That was the first signal that other entities would soon follow. While there was no official announcement about this pivot, it soon became clear that Malaysia’s state-owned pension funds and sovereign wealth fund were being nudged to look 'inward' and invest in and develop the local financial ecosystem.
Khazanah introduced its Future Malaysia programme aimed at developing the local venture capital ecosystem, while KWAP also launched a VC investment platform and said it was bullish on local market opportunities.
Some experts believe this local focus is essential and potentially desirable.
“With so much geopolitics going on, it makes more sense to keep your investments closer to home," one family office chief investment officer told AsianInvestor.
It’s likely that more state-owned investors, especially sovereign wealth funds, across the region will start adopting dual mandates of local development while pursuing wealth creation.
3) CHINA SLIPPED OUT OF FAVOUR
More international asset owners turned wary about investing in China in the Year of the Rabbit.
Part of this cautious sentiment was driven by geopolitics, while some of it was based on concerns about China’s dimming economic prospects over the medium term.
Tumbling stock markets and a deeply troubled property sector didn’t help.
Some large global pension funds, like Norway’s Government Pension Fund Global and the Netherland’s APG Asset Management, as well as a few asset managers such as Vanguard and Van Eck scaled back operations in mainland China and/or trimmed teams in Hong Kong as they restructured Asia operations.
Canada’s leading pension funds also ditched China private equity and said they had no immediate plans to invest in that sector.
While there are plenty of other institutional investors that stay invested in China, the overall sentiment remains subdued.
Expect more geopolitical turbulence in the Year of the Dragon, as the world braces for a potential return of Donald Trump to the White House after presidential elections later in the year - which could heighten US-China tensions again.
4) STALEMATE BETWEEN HONG KONG, SINGAPORE IN THE FAMILY OFFICE RACE
At the start of the Year of the Rabbit, Hong Kong was making a determined push to woo family offices.
It started with a high-profile Wealth for Good summit in March and several budget incentives for the budding industry, which was later followed up by the launch of a wealth academy.
Progress has been slow and steady and by year-end, Hong Kong attracted a little more100 family offices int total, including previous years’ efforts.
There is still a lot of work to be done if the city wants to hit the 250 large single family offices-mark by 2025.
Meanwhile Singapore, which had more than 1,100 family offices at the end of 2022, also struggled to keep up its blistering pace after a $2 billion money laundering scandal blew up, ensnaring some single-family offices in its net.
That brought in heavy regulatory scrutiny and as of now, the approval process for setting up a family office has slowed significantly in the city-state.
With Hong Kong stil not attracting family offices in droves, and Singapore slowing the approval process, Dubai could emerge as eventual winner.
The Middle-East emirate has become a new favoured destination for family offices, especially as it boasts a growing tech start-up scene -- a big draw for family offices.
The Year of the Dragon promises to keep industry watchers on their toes.
5) THE CIO WHO GOT IT RIGHT ON INTEREST RATES
Finally, AsianInvestor gives a big shout-out to William Chan, CIO of HSBC Life Hong Kong, who was one of the first senior investment executives to openly state the Fed Reserve was unlikely to cut rates early in 2023.
His comments came in the first half of 2023, when several asset managers were convinced that rate cuts were around the corner and some asset classes were posting gains on hopes that the Fed was going to change direction after raising rates all through 2022.
Yet there was no economic data that supported that view, Chan explained at AsianInvestor’s flagship Asian Investment Summit in May.
“The markets are being a bit optimistic by pricing in some economic slowdown — potentially some technical recession — later this year,” Chan said.
“The US economy appears to be more resilient to interest rate hikes than people expected.”
He was spot-on – the Fed did not cut rates during the Year of the Rabbit. Nor did the US slip into recession.
By the second half of the year, other asset managers came around to the same view.
We will see if the next 12 months changes that.
As we enter the Year of the Dragon, we wish all our readers a joyous and prosperous year.