00:00Let's grant this for us. How is it looking when it comes to the Chinese space?
00:03I mean, are you seeing an evolution in the economy?
00:07Thank you for having me.
00:10Well, as we all know, China has been correcting the real estate market for quite some time to prevent an all-out bubble.
00:17They have largely succeeded in that, but obviously that's actually not putting any confidence in consumers' head,
00:23which is why China's consumer savings rate in the bank is record high.
00:27So that means a lot of unspent capital, which the government wants to unleash.
00:32So it's unlikely they want to reflate the property sector like they did because it took a lot of work to deflate them to prevent an all-out correction.
00:43With that in mind, you have seen the government actually increasingly in China pushing the investors or pushing investors on the sideline or consumers to actually buy stocks,
00:54which is indirectly benefiting China's economy by saying, hey, stock is good, it's a new wealth, it's a new storage of wealth,
01:02rather than just purely relying on real estate historically, the Chinese mindset.
01:06And that's going to indirectly and directly benefit Hong Kong in particular.
01:10Hong Kong is a stock market for China to the world, the world to China, one of the three money market, money center,
01:15and happens to be a tax haven together.
01:18When you clip that together, I think Hong Kong is in a pretty bright place.
01:22China real estate is still going to be tough, unlikely to see a lot of recovery anytime soon.
01:26But Hong Kong is probably at a pretty interesting paper point.
01:30So this could trickle down to Hong Kong's property sector.
01:34I mean, we've seen the likes of BABA, for instance, right?
01:36The stocks have gone pretty much gangbusters.
01:38Is that translating to perhaps BABA buying more space in Hong Kong?
01:43I think it's a trickle down, right?
01:45Historically, we've always seen China wanted to create some internal competition with Shanghai and Hong Kong,
01:49fighting to be the financial hub of China.
01:52It's now increasingly clear you talk to any of the animal spirit entrepreneurs in China,
01:57when they want to list a company when it's ready, it's Hong Kong.
02:00It's not London, it's not New York, it's largely Hong Kong.
02:03But with that in mind, it's benefiting Hong Kong with the stock market being more buoyant already.
02:08When the stock market in Hong Kong is more buoyant,
02:11Hong Kong savers will feel better about money in the pocket with the stock market
02:16that almost always goes back into the property sector.
02:18First, in residential real estate, you have already seen the residential sector in Hong Kong
02:23reaching the bottom with volume stabilized and going up, prices starting to stabilize on an uptick.
02:28And the Alibaba real estate purchase is a good sign to say,
02:35hey, companies like Alibaba and a few others that we know are in line pretty soon
02:41to announce something in the Hong Kong market, it's where they're planting a flag.
02:45And this is probably not coincidental with some kind of central government backing
02:50to say Hong Kong is the place for China to do business with the world and the world to do business with China.
02:55So is Go capital capitalizing on that?
02:57Yes, we are, right?
02:59A couple of months ago, we did a trade where I thought with AI taking away jobs potentially,
03:05but would shareholders or large companies' bosses having more time on their hand,
03:10more profits likely on companies using AI.
03:15A confluence of factors means more wealth to the top,
03:19but that means it's fascinating to more time also.
03:22That means luxury residential will be the first to reflate in Hong Kong most likely.
03:26But how do you play that?
03:28So we actually made a significant strategic investment into CSI,
03:32a medium-sized luxury and local developer to allow us to go back into the luxury residential sector
03:39in a scale fashion.
03:41That was the first trade.
03:42I am very bullish actually on Hong Kong over the next 12 to 18 months.
03:46I think a lot of the stories are pointing, a lot of the factors, trends are all pointing it for reflation
03:52or correction on the upside or pivot, I would say.
03:56And I think a telltale sign is how much traffic there has been in Hong Kong last couple of months now.
04:00We're almost always running late for meetings.
04:02So if you're optimistic about the next 12 to 18 months, how much money are you willing to deploy?
04:08How much of the fund, how much of your fund are you willing to deploy?
04:11Oh, I think we are still deploying our Pan-Asia Fund 7.
04:17I would say anything that's earmarked for greater China or probably earmarked for anything outside of Japan
04:24are all going to be Hong Kong.
04:26Because even from Frontflow's point of view, we're seeing investors asking more and more about China,
04:32a second largest economy, mostly because everyone is over-invested in U.S. or U.S. dollar asset for that matter.
04:38They have to diversify.
04:40And part of the diversification, have to look at China as a second largest economy in the world.
04:45And when you look at China and if you're a new investor going to China,
04:48Hong Kong is going to be a much easier place of entry.
04:51And it happens to be at a cyclical low at this point.
04:54So, it is a way to diversify.
04:57But when you take a look at risks, is there further argument that you should be pulling your funds out of the U.S.?
05:04I mean, take a look at what's happening today.
05:05We're looking at a government shutdown.
05:07There's more and more risk in investing your money in the U.S.
05:11U.S. is still the innovation hub of the world, right?
05:14Everything that's new, generation-changing, paradigm shift is coming out of U.S.
05:20So, you can't ignore U.S., but you can no longer be solely relying on U.S.
05:24The world is going through a deglobalization phase, regionalization phase, creating opportunities.
05:30What is China plus one strategy with Vietnam, Mexico, Turkey as a manufacturing hub to take some away from China to AI,
05:38creating more time for all of us, maybe more money in luxury, any places that have a high quality of life.
05:45All of that is forcing all of us to rethink how do we diversify geographically against a backdrop of geopolitical risk.
05:54And it's just smart business to be able to think about diversifying.
05:58And increasingly, Asia looks attractive.
06:01And it's not just about Hong Kong or China.
06:02It's also perhaps about Japan.
06:04Absolutely.
06:05Japan has been on a tear.
06:06And with the reform starting to push through, a lot of the zombie stock market company or activist investors pushing companies to use the balance sheet more efficiently,
06:19it's creating a lot of opportunities for private equity and indirectly real estate private equity also.
06:26Do you see risks, given that we have some uncertainty in the political situation, some uncertainty in the leadership in the country?
06:34Risk in where?
06:36In Japan?
06:37There is some risk, but it's still a very large economy dominated by Japanese companies,
06:45not necessarily working for shareholders' interests in mind historically, right?
06:52They didn't have to do it with the careture system or the cross-holding, but that mindset is changing.
06:57So absolutely, there are risks, but the risks are tolerable or can be calculated against the reward.
07:04Being in such a large economy, being so much inefficiency that you can create, that means it's creating a lot of value and opportunities.
07:12So that should more than offset some of the political uncertainty you have to deal with.
07:15If anything, some of the political uncertainty or the risk creates opportunities.
07:19If everything is too rosy, it's going to be too much capital, chasing too few deals.
07:24In terms of how you're allocating your funds, what's changed in the last 12 months?
07:29Have you made any shifts, dramatic shifts in how you're allocating your funds?
07:34I think the last couple of years, per se, we have been investing a lot more as a private credit player, a structural credit, than as an equity investor.
07:44Because you get almost the same reward for being in a less risky piece of the capital stack, helping banks reduce their risk exposure and so on and so forth.
07:56I think that's starting to shift in the last three months, in particular with Japan, we feel we can be on the offensive mode.
08:04We have had a few nice exits and we have had actually a few nice wins in terms of iconic assets that we didn't think we could get.
08:11So that's a good start.
08:12And Hong Kong, in particular, I think last three to six months, it's becoming more clear to us that I feel it's a home turf.
08:19It's a place we understand and these signals means I always say the best defense is actually offense.
08:26This is the time that we have to play offense again.
08:30Hong Kong is probably the right spot to double down and increase our presence in Hong Kong.
08:35It is an inflection point right now, would you say?
08:37I feel it's absolutely an inflection point.
08:40I hope not everyone will agree because otherwise there might be too much competition to come.
Be the first to comment