James Cheo, Chief Investment Officer, SEA at HSBC was recently interviewed by Jo Murphy, Managing Director, Industry Relations, Asia Pacific, CAIA Association.
Joanne (CAIA): It’s great for the CAIA association to be a part of 2022 WBR Fixed Income and Leader APAC Summit. Now, as part of our engagement with this wonderful summit, I have a happy task to interview a well-known leader and a seasoned industry voice, James Cheo, who's both the MD and the CIO for HSBC Global Private Banking and Wealth. He's also a CAIA member, and that's always a happy thing to mention.
James (HSBC): Well, I am James Cheo, Chief Investment officer for HSBC, private banking and well, for Southeast Asia. So what I do a lot is to basically provide thought leadership for the bank, but also to do asset allocation for many of our customers, but within which I will look at investment strategy across various asset classes and look for investment themes, long term structural themes for investors to consider.
Joanne (CAIA): Well, you've set me up nicely for my first question because I think you talk about that whole themes and asset allocation. One thing for certain is the word diversification is back. Investors are eagerly looking at their portfolios and thinking about where their investment should be. We recently wrote a thought leadership paper called “Portfolio for the Future” and in that we really say that the whole 60/40 asset allocation portfolio is pretty much dead, that isn't going to provide the returns that we need for the future. And with this rapid shift in the economic environment, we find ourselves in, we've got to think a little bit longer about how we make our investments. So, with that as a backdrop, James, what are you seeing here from clients and their appetite for all things investment at the moment?
James (HSBC): Well, I think you have to think about the long term when it comes to investing and constructing portfolios. And I think what's clear even before this year’s performance in which both bonds and equities both registered negative returns, which is actually a very rare occurrence. But having said that, I think it's very important to think about having a larger chunk of investments into alternatives, whether it includes commodities, private funds, private market funds, or even hedge funds, because public returns is going to be very much a challenge in the years ahead. And having a large proportion in the traditional 60/40 portfolio into equities inherently makes the portfolio much riskier. So, I think it's very important to have a bigger allocation into alternatives and to kind of futureproof portfolios by also at the same time looking at longer term themes such as sustainability, such as digital transformation, which are going to be very crucial in the years ahead.
Joanne (CAIA): I do smile when you said that that both fixed income and equities going down in the year is rather rare. We haven’t used that black swan word yet. I think the reality is this year has surprised so many with a huge sell-off in the equity and a huge sell-off in the fixed income market. And I think one thing we can really think about is the world is going to be much less liquid when it comes to investment themes and allocations. And you cite that obviously a larger chunk with your wording for allocation to alternatives. From your lens here, James, what are the investors looking for? Are they eager to look at private equity infrastructure? What type of asset allocations are they looking at? What type of products are they thinking? What's the kind of temperature for investor allocations here at the moment?
James (HSBC): Over the last few years, I think investors have been looking very closely in the alternative space, whether they are hedge fund strategies that could provide alpha and to kind of benefit from a very uncertain economic outlook. But also, I think increasingly, especially this year, investors have been looking for private market solutions that could hedge against rising inflation. So of course, that would include infrastructure. Some resilient parts of the real estate market to get that income that could reset higher amidst a time of higher inflation. So, I think those are the themes that work very well and of course garner a lot of interest from investors, especially in 2022.
Joanne (CAIA): I think the term I'm hearing an awful lot when I listen and read about the global wealth and asset management industries is we're seeing this big institutionalization of the wealth management industry, the retail investor, the high-net worth investor. They've got a lot more appetite for things. They have a lot more questions and requirements. So the whole kind of digital transformation from an investment perspective is absolutely one area to think about. But equally, the digital transformation for the client is changing as well. So again, James from your lens here in Asia and potentially into Southeast Asia. What are investors requiring of you from a servicing perspective do they require more transparency, do they require more liquidity? What are the sorts of things that your clients are requiring from you at the moment?
James (HSBC): I think investors now in Asia have become much more sophisticated in terms of their investment needs. And clearly, I think there is a need to provide a wider spectrum of products and solutions for the growing wealth in Asia. And I think what's very important is a lot of education. In terms of helping investors understand about investing for the long term, constructing diversified portfolios. And ultimately, I think where the clients really want is to have data driven kind of process which help them make decisions based on data. And I think that's going to be a very crucial element when you look at how you construct portfolios, how you rebalance portfolios, how you stress test portfolios. And I think those are things that investors really want to know. And of course, in order to get that portfolio mix, you must look at global equity solution, global bond solution, and an alternative space that can provide that sort of resilience for their portfolio. So, I think these are the needs and solutions that investors want and of course they want the convenience, the ease of having all these transactions and rebalancing done through their digital platforms. And I think those are going to be very, very important for clients in the years ahead.
Joanne (CAIA): All with the touch of a finger, right, James. And the clients had expectations of change dramatically in the last couple of years, and I couldn't agree with you more. And of course, the word education is one that kind of strings on my heart strings. As far as the opportunity there is, there's so much that we need to know about. And that beat we've had post the global financial crisis in markets the last decade plus that really has gone. Those days aren't coming back. So having the entire spectrum of investments in front of one is going to be so much more important moving forward. Now, with that said, there's still a pretty tough landscape. We've got a difficult global landscape geopolitically, environmentally inflation, recession, war. But equally, what's your thoughts about the future? Are there hopes, are there going to be some changes? But it all feels a little bit worrisome out there now. What are your thoughts about headwinds at the moment for our markets?
James (HSBC): Well, I think if you look at the financial performance of both equities and bonds in 2022, it's easy to be pessimistic about the future. But I think one silver lining is that it's a very rare occurrence or in fact, it never happened for two consecutive years of negative returns for both asset classes. So, I think we've had 2023 should at least see either bonds or equities turn in a positive run. But having said that, I think the year started with many unknown unknowns. So, no one expected the war to happen. Everyone was very afraid of the ongoing impact of the pandemic when the year unfolded. And of course, no one would expect that inflation would hit decade highs and interest rates would go up as high as almost 5%. But I think this going into next year, what we can see at least a lot of these unknown unknowns become somewhat known unknowns. We know that interest rates are going to plateau somewhat, really, because inflation is peaking out. We also know that, of course, in many ways, even in China's case, there is also a pivot towards gradually moving away from zero COVID policy. That will have they will have bumps along the way. But nevertheless, I think the move is in the right direction. So, I think there are some glimmers of a silver lining for financial markets as we look into 2023 And clearly growth is still going to be resilient for Asia, especially whether it's India, China or even Southeast Asia. We still should see quite strong growth and healthy growth for the region.
Joanne (CAIA): I love that optimism there, James, and I can really applaud that. And I smile about the unknown unknown and the fact that never have we seen fixed income and equity both go down for two consecutive years. We never see that happen in one year. So let's hope that there is some good things to be optimistic about a more thoughtfully and more respectfully that these genuinely awful challenges our world is under right now. We see some better times in front of us. But just before we go, is there one overall theme or nugget you'd like to leave us with today?
James (HSBC): Well, I think what's important is that you want to prepare. Preparing is more important than trying to predict the market. So prepare by constructing a diversified portfolio. And I think that's very important because this time round or going into 2023, it's a very good time to construct a well-diversified portfolio because in many ways valuations are at historic lows and of course the tailwind is towards your advantage if you have a long-term view. So, preparing is more important than trying to predict the markets.
Joanne (CAIA): So, prepare versus predict and get ready to construct and allocate - what a great way to sum up our call this morning, James.
About the Author:
James Cheo is Chief Investment Officer, Southeast Asia for Private Banking and Wealth Management at HSBC. Mr. Cheo is a member of the Global Investment Committee for Private Banking and Wealth Management and also a member of the Regional Investment Committee in Asia. In his role, he spearheads the development of investment strategies across all asset classes for private banking and wealth management clients in Southeast Asia.
Prior to re-joining HSBC Private Banking, James was Senior Investment Strategist at Bank of Singapore, responsible for asset allocation and thematic research. Before that, James assumed Investment Strategist roles at Barclays Wealth Asia. From 2004 to 2009, James served as Senior Economist at the Monetary Authority of Singapore, where he was part of the team that formulated policy actions for Singapore during the 2008 Global Financial Crisis.
With his knowledge and wealth of experience, his investment views are frequently sought after. He has established a strong media profile, with appearances on notable financial media including Bloomberg, CNBC, Channel News Asia, Channel 8 Mandarin News; and printed publications such as the Financial Times, Straits Times, Business Times.
James graduated with First Class Honours in Finance from Nanyang Technological University. He was awarded the Chartered Financial Analyst charter in 2007
Jo Murphy has been in Asia for over 20 years, predominantly based in Hong Kong but with two valuable years spent in Singapore. She has held several senior Asia Pacific wide management positions, successfully leading sales, business development, marketing and client relationship management divisions for major institutions; and has both built and managed large and effective regionally located teams.
Jo was expatriated to Hong Kong, with Morgan Stanley, in early 1997 and has worked for several global institutions; covering intermediary, buy and sell side, entrepreneurial and now in a professional education business environment - throughout the Alternative Investment industry.
In 2000, Jo joined HSBC Securities Services (previously Bank of Bermuda) as Head of Sales, Asia Pacific (based in Hong Kong) and in 2005 moved on to Head of Sales Asia (ex-Japan) and Product Specialist for all alternative investment products at Deutsche Asset Management (in Singapore). In 2008 Jo joined Triple A Partners, a privately held group. In early 2012 Jo joined the Chartered Alternative Investment Analyst (CAIA) Association, the international leader in alternative investment education and provider of the CAIA designation, as Managing Director, Asia Pacific.
Jo enjoys the reputation of being hard-working, capable, committed and commercial; was voted “Asia’s most influential woman in the alternative sector” and also one of “The 25 most influential people in Asian hedge funds” by the industry’s leading AsianInvestor magazine. Jo also was a founding member of the Hong Kong AIMA Chapter, previously held an Executive Committee Member position and now sits on its Education Committee. Further, she also holds a number of corporate advisory positions, is a Fellow of SUSS (Singapore) as well as an advisory council member of UPACA Gurukul (India).