US family investors keep faith in Asia despite worries

The prospect of a prolonged US-China trade war and the unrest in Hong Kong are concerns for American family investors, but they are not ready to cut allocations to Asia.
US family investors keep faith in Asia despite worries

US investors are banking on the long-term potential of Asia, and China in particular, despite concerns rising over the short-term economic and financial market impact of a Donald Trump-led trade war and the current unrest in Hong Kong.

After another weekend of violent clashes involving police and protesters in Hong Kong, serious questions are being asked by overseas investors about the territory's future.

“From an investment standpoint, I’m worried because this [the Hong Kong situation] could evolve into a black swan event for the markets," said Jimmy Chang, chief investment strategist for Rockefeller Capital, which manages the wealth of the seven-generation Rockefeller family. 

Jimmy Chang

“If China sends in the troops to quell the protests, that would trigger retaliatory measures from the West and raises questions about what happens to Hong Kong’s special status under ‘one country, two systems’, and as the financial centre in Asia," he told AsianInvestor.

The danger of capital flight and of counterparty risk for investors and asset managers, is a real concern, he added.

“The hope is that Hong Kong is a still a golden goose for China and they will find a way to defuse the tension. These situations usually require some form of compromise, but it’s unclear how far the protesters want to go.”


At this point most investors are not really thinking about the potential black swan consequence of Hong Kong’s dire political situation, market observers say.

However, they should brace themselves for continued uncertainty in the markets, argued a New York-based private wealth adviser at a large Wall Street bank.

"We have been saying for some time that the trade war is a risk that the market seems to be not factoring in to the extent that it really should be," he told AsianInvestor. "It could lead to a great deal more volatility."

That said, a few hedge funds have been shorting the Hong Kong dollar, betting that at some point the territory will be forced to remove its peg to the US dollar. High-profile hedgie Kyle Bass of Hayman Capital Management has openly admitted he is targeting the currency.

Such strategies underline the uncertainty over the status of Hong Kong as a global trading centre.

For now, Chang said, US investors are watching the situation closely "hoping that ultimately the protesters, the Hong Kong residents and the government can reach a compromise".

For most US investors that AsianInvestor has spoken to in the past week, the Hong Kong protests have been overshadowed by the broader trade issue with China. As with the protest situation, however, no one has any real answers when assessing the outcome of the trade dispute.


Neither side wants to lose face, and President Trump certainly doesn't want the stock markets to tank ahead of what is likely to be a bitterly fought 2020 election campaign.
Michael Zeuner

So some form of compromise is widely seen as likely. And if the US extends the allowance for American technology companies to supply tech giant Huawei – which expires in mid-August – that could be viewed as an olive branch to China.

Michael Zeuner, managing partner of New York-based advisory firm WE Family Office, said interest in China was still strong. 

"Our view of Asia looks at the long term," he told AsianInvestor. "It’s clear to us that what is going on with regard to the economic and demographic development in the region makes it very attractive for future growth.

"There will be ups and downs, but we think families having exposure to emerging markets would much rather be investing in emerging Asia than other emerging markets," Zeuner added. "I would say there has been a dramatic shift away from Latin America, for example."

He agreed there were short-term worries about the geopolitical overlay, "although most of our families are long-term investors and they feel a little more comfortable in the private markets in Asia, and in China in particular".

Still, Zeuner said: "We haven’t made any significant changes as a result of what’s going on in the short term."

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