As the Australian resources boom begins to wane, Asian investors are increasingly looking to the opportunities being generated by the Government’s infrastructure agenda. A Super Review roundtable conducted in Hong Kong late last month examined the changing dynamics.
Mike Taylor, Chairperson & Managing Editor, Super Review: Gentlemen, welcome to the roundtable. This is our opening Asia focused roundtable and what I’m particularly interested in talking about is both the investment opportunities going into Australia and the opportunity for Australian superannuation funds looking into Asia. And I think we have a view that the flows are going back into Australia from Asia and investing in Australian assets. So I thought we’d start with the flows going into Australia, perhaps you, Sam, can discuss precisely what’s going on out there.
Sam Watson, Head of Specialised Finance for Asia, National Australia Bank: Looking at the direct infrastructure investment space, we definitely see the flow being two ways.
Australia has been a very attractive destination for international investment for a long time, so I don’t think there’s a real change in that outlook. But what’s really started to generate interest is the privatisation program that’s come through over the last couple of years, and has really started to gather momentum now with the recent budgetary announcements both at a Federal and State level.
A lot of the investment teams located in some of the key Asian markets typically have an Asia Pacific mandate, so they’ll be looking at both regional opportunities and also Australian opportunities.
It’s our view that there are three key drivers – firstly, the pipeline in Australia is very well publicised. There’s a lot of long-term visibility, the governments have been very good, and Infrastructure Australia in its role as coordinating body has been very good in giving investors a feel for what’s coming through.
There’s a relatively high degree of execution certainty in Australia, if I compare what we see in regional markets to the way the Australian market functions. When an asset or a project comes to market, it’s typically well conceived – there’s broad based political buy-in to the process of selling or developing, and so we don’t see a lot of real execution risk processes – once they start, it typically comes to a positive conclusion.
There are some obvious exceptions to that. When I compare that to what’s happening in regional markets, the time-frame around project execution and sales processes are much more variable.
The third key factor is a strong pipeline for investors to commit resources and spend the time familiarising themselves with legal and regulatory risk, market risk, it’s helpful to see a long-term pipeline.
And you only have to look at what the profile of the recent privatisation, there’s been Chinese SOE interest, the Japanese have been back looking at assets. Some of the Hong Kong and Singapore groups have for a long time been focused on Australia. About half of what my team is doing at the moment is actually inbound into Australia by volume.
Mike Taylor, Chairperson & Managing Editor, Super Review: Alan Wang, looking at investment going the other way, how are you seeing things out of Australia? Because I know Premium China Fund has been working very hard to drive greater interest in China in particular, but how do you see the investment flows?
Alan Wang, Investment Director, Value, Partners Ltd: Yeah for the Greater China market [it] has been quite challenging for the past couple of years, in particular investments are more related to mainland China, even though we see relatively better flows and interest in places like Hong Kong [and] Taiwan which are billed as more defensive within the Greater China region.
For Asia in general, our Asia focused fund has done better in terms of investor interest compared to our mainland China funds. And I think that one of the things I’ve heard is that the market doesn’t really understand what the China reform means.
That uncertainty has really put off a lot of investors in terms of investing into China at the moment, because at the end of the day there’s a price for everything, but what investors are mostly afraid of are uncertainties in the market place. For example even when you look at places like India this year where there are a lot of expectations about policy reforms in the newly-elected government, investors have positive expectations regarding India, because that sets the expectation in place. But in terms of China after the new government took office about a year ago, it has been more focused on anti-corruption which, in a way, has slowed down both investment as well as retail spending in China.
That, in a way, has put in a lot of uncertainty in the market place where people don’t know how China is really readjusting its economic roles.
Even so, from a bottom up perspective, we do see a lot of opportunities within China. There are sectors that have done quite well year to date such as renewable energy, high speed railway, e-commerce, etc. But generally speaking I think investors are just shying away from investing into China at the moment. Over the longer term we do believe there is a lot of opportunity, given that economic growth is still quite robust.
Alex Boggis, Managing Director, Aberdeen International Fund Managers (Hong Kong): Investing into China. Our view of investing into China has been a very cautious execution through Hong Kong.
We [have] utilised Hong Kong businesses that are way bigger than Hong Kong itself that need to grow in the region and have chosen China as a natural partner. So we’ve chosen to go with the management teams and companies that we know well [and] that we think will be able to use the client’s money the best – so we’ve been a little bit cautious on buying into mainland China.
Of course the opportunities are expanding, the ability and methods of investing into China are expanding, so we’re keen to do more there, but I think you have to understand that our bias is towards very strong corporate governance, maturity of markets and knowing who we’re investing with.
China is still quite immature, and it’s very early days, so we’re willing to wait and watch and learn from other people’s experiences and then take advantage of that later on.
So definitely, with respect to flows into China, investors have been more reticent to invest in China. I guess the currency coming off a bit a couple of months ago didn’t help and also people’s minds perhaps have drifted towards more developed markets of late, because the return certainly in stock market terms has been coming from those markets and not from China.
Ray Catt, Head of Funds & Insurance for Asia, National Australia Bank: I think we’re following a very similar approach to Aberdeen, I think we’re following our global clients and our Australian clients into the region. I think it’s fair to say that it’s a long-term game playing with China.
We’ve seen a lot of money being accumulated particularly in Hong Kong from international investors, particularly a lot of hedge fund money has been coming into the region, principally coming out of the US. I think we’ve seen something like 50 new hedge funds set up so far this year. And there’s roughly about $110 billion now currently sitting in hedge funds, all frantically looking for a home and a lot of that is targeted at China.
They’ve been making some fantastic returns, I think 15 per cent on average for the leading players, but not all of those [hedge funds] are going to succeed. A lot of them are fairly small operations and unless you get to the magic $250 million-type level, it’s hard to get the returns to pay for your infrastructure and also attract pension fund money from the US. So yeah there’s a lot of money coming into the region, it’s all sitting there deciding where it’s going to go.
I think the real estate market has been very attractive for a while, but also perhaps overheated. We’re waiting to see where that goes; I think the Chinese real estate market is obviously a huge market and you had to be fairly selective in which parts of the property market you want to play in and also understand the local markets. So I think without the local knowledge and contact you’ve got to be quite cautious about where you place your money.
Sam Watson, Head of Specialised Finance for Asia, National Australia Bank: It does raise an interesting point actually; the discussion so far is that Asia ex China is not a single market – it is a series of complex and quite different economies. And I think you really need to understand the subtleties and the dynamics within each of the economies to really make a sensible assessment.
I think that there is a tendency, at least within some of the Australian organisations, that we talk to to think about Asia as one single investment destination and I think actually the reality is much more complicated than that.
Alan Wang, Investment Director, Value, Partners Ltd: That’s one of the challenges that we’re facing when we talk to global investors, particularly the larger US and European pension funds, where they usually get emerging market (EM) exposure, also Asia exposure to global funds and they don’t really go down to the country specific level. And for us obviously it’s a challenge how to get those investors to invest on a more country level. And that has been one of the biggest challenges so far.
The benefit of local knowledge
The challenge for Australian investors looking to work into Asia is understanding the intricacies of the various markets. Long experience suggests this is best achieved by partnering with those who have local knowledge and experience.
Mike Taylor, Chairperson & Managing Editor, Super Review: I guess one of the themes here that’s recurred through all your discussion has been the need for experienced boots on the ground in Asia generally. Whether we’re talking about China or whether we’re talking about Asia ex China, there seems to be a distinct flavour that you need people with experience and people you can trust and be prepared to work with. How difficult is it to actually achieve that?
Alex Boggis, Managing Director, Aberdeen International Fund Managers (Hong Kong): I think it’s about expectations; I suppose most people do want to go in on the ground immediately and get a return, [but] it’s very very difficult in any of the markets.
The way we’ve done it is play very much the long ball game, so where we wanted to set up teams we have done so in each country. We’ve tended to have a senior person from the investment team that’s well known to us and has longevity at Aberdeen [and] put them there and then hired grads in those markets.
The process of hiring those grads is quite a strict one, we need to make sure that as well as the education attainment, they have the same mindset as us, because we’re very much bottom up stock pickers. So for us we’ve taken a long-term view and built the teams up slowly over time, which has worked for us. But again, our expectations perhaps were different to someone else who wants to go in immediately. And China is a good example where, of course, you could do a joint venture which we haven’t done. And you can perhaps start on the run straight away, but [that’s] very, very difficult.
Ray Catt, Head of Funds & Insurance for Asia, National Australia Bank: When you look at South East Asia in particular, a lot of businesses are family-owned enterprises or state owned enterprises. And in many countries you have local regulations and legislation that prohibits external parties coming into those countries, unless you work closely with local players.
In a lot of these markets people have already been there and tried it and have formed partnerships. Some are working, some aren’t. I think there are opportunities for new partnerships to be formed. But getting back to Sam’s point, I think you’ve got to look at each Asian market on its own merits and they are very different and you do need that local knowledge in my view to succeed.
Sam Watson, Head of Specialised Finance for Asia, National Australia Bank: I think that’s exactly right, certainly from a direct infrastructure investment perspective it’s possible for some funds or some investors to make progress without a local partner, but in our experience the choice of local partner is probably one of the most critical decisions after market entry that investors will make. For all the obvious reasons and the ones that have been ventilated here, but also the ability to access local on the ground knowledge, understanding of the market and networks within business and the political bureaucracy.
If we look back across our experience, the cornerstone success in some of these more complex economies is a good local partner.
Alan Wang, Investment Director, Value, Partners Ltd: Yeah I think there’s definitely no easy answer to how to do the business of investing into the local markets.
In my older times with Macquarie Bank more than 10 years ago we did direct investment in China and we had very mixed successes. And over the past 10 years with Value Partners, obviously we focus more on the secondary market, so we didn’t have to do any sort of joint venture as such, but still we hire local people to be the analysts and we have had some very good successes.
But when we try to tap into other markets such as Korea, Japan or even India, the culture difference makes it very hard. We consider ourselves China experts, but when we go to other markets, it is a big challenge. So I think everyone just needs to figure out their own way how to do it.
Dealing with different regulatory environments
Mike Taylor, Chairperson & Managing Editor, Super Review: I noticed a story in the South China Morning Post this morning talking about the regulators being worried about some irregular cross-border flows of money and the likelihood of some sort of action, they were being suitably elliptical about it as regulators are required to be. How complex is the regulatory environment? How complex is it to actually understand and work within the regulations that apply from country to country?
Alan Wang, Investment Director, Value, Partners Ltd: Well for China in particular I think the regulatory environment, on a paper basis is not that complex, because anyone who has dealt with Chinese contractual negotiations, knows that when they’re going into a contract they try to make the contract as vague as possible. And it comes down to interpretation and enforcement. And that’s the same for Chinese regulators in general in my opinion.
So it all comes down to how the regulator interprets your actions and how they will enforce whether your actions are compliant or not when it comes down to specific actions. So that’s what makes China’s investment environment so unpredictable and sometimes make it uncertain for investors.
If China had a more clear regulation and enforceability environment, I think that would make a huge difference to investors in terms of a positive interest into investment into the country.
Alex Boggis, Managing Director, Aberdeen International Fund Managers (Hong Kong): I guess the point is the regulation is changing quite fast as well, so probably within the regulators themselves they’re not quite sure maybe where it’s going, frankly.
Also, in China, you’ve got a number of different regulators that you have to deal with as well as various local authorities’ rules that you’d have to deal with. So it is complicated and it must be difficult to work in China.
For the rest of Asia where we operate, the regulation has been tightening, not always in our view fairly against fund managers. For us the regulations are getting harder, but they’re clear.
You mentioned cross-border flows, so the AML and CTF. We’ve always had strict policy, but it’s getting stricter and stricter. And the costs of managing the regulation are getting really, really high. And of course there’s also pressure on the cost of managing funds; generally people are, especially in Hong Kong, challenging MPF and saying you’re charging a lot of money.
Sam Watson, Head of Specialised Finance for Asia, National Australia Bank: That experience is probably shared across the direct investment side as well. Those issues exist in a lot of the Asian markets unfortunately.
High level regulation often differs from the way in which it’s implemented and that certainly affects investor appetite and outcomes. If I think about it from the perspective of our Australian clients, we come from a what I consider a hard law jurisdiction, black letter contractually-based. You certainly need to be more flexible in your thinking when you’re transacting in markets outside of Australia – certainly within the South East Asian region.
Ray Catt, Head of Funds & Insurance for Asia, National Australia Bank: I agree that Hong Kong and Singapore have a very robust rules-based approach, whereas you need a very different approach if you’re in Indonesia, Thailand, Malaysia. And I think coming from an Australian background it is very rules based and very prescriptive and it isn’t always the case in a lot of South East Asia; it’s all about interpretation of the rules and the right dialogue with a local regulator.
Alan Wang, Investment Director, Value, Partners Ltd: I think there is one positive point that come out of this; for firms that are set up in places like Hong Kong, Singapore, they do have an advantage, because of the well-established regulatory environment.
Over the past few years we have seen many investors choosing domestic Chinese fund managers as investment advisers or managers, simply because their investment performance might be very good in the shorter term. But over time they have realised that their infrastructure, particularly their risk management of the compliance side are not up to international standards. So more and more we do see investors who come to Hong Kong and Singapore to search for investment managers.
That has benefited the firms that are set up here, that are more internationally acceptable, which is a good opportunity I suppose.
Dealing with different business cultures
Recent events have suggested that Australian firms operating in Asia need to be sensitive not only to Asian business culture but also to how those cultures are perceived within the context of Australia’s stricter regulatory environment.
Mike Taylor, Chairperson & Managing Editor, Super Review: There have been instances in recent history of Australian firms getting into trouble, because of perceptions, in a domestic, political and commercial environment of things that they did in a less regulated environment.
‘Facilitation payments’ in Australia sound awfully dodgy, where in some countries they’re just an accepted part of doing business. Is that a sort of a balancing act, or do Australian companies abroad need to play by first world rules?
Alex Boggis, Managing Director, Aberdeen International Fund Managers (Hong Kong): In the UK you have, of course, got the anti- bribery rules, so there’s no question that Aberdeen would be playing outside the rules with that. The concept of these payments that are made, I guess they’re seen as back-handed in some way.
Anecdotally, it does go on in a lot of markets. I think the answer though is that in every market or almost every market there will be a path to take where you find a partner that doesn’t do that. And again, it’s about expectations, do you want to play the long ball game and build up a long-term relationship and build a business or do you need results now?
So there’s this whole question of short term versus long-term comes into play. And in Asia and elsewhere to be fair, there are many traps that could ensnare you if you want to play the short term game.
Alan Wang, Investment Director, Value, Partners Ltd: I agree and I think it does reflect more on the direct investment side. I have seen many companies that have been burnt in China over the past year or so, particularly for example the healthcare sector, even some of the dairy sector, New Zealand companies etc.
Doing business in China I think that you just have to have that balance. All the Chinese partners will say yeah we have good connections, but who doesn’t have a connection in China?
So you have to play by the rules, just be very careful on what you do, because eventually there could be some crackdown which could influence or affect the foreign firm as well. I think it has been less of a problem for us, because we build predominantly on the secondary market, but for direct investment I think that’s definitely something to look out for.
Sam Watson, Head of Specialised Finance for Asia, National Australia Bank: It’s probably why we see at least on the direct side, the broader Asian market divided up into three categories – Singapore and Hong Kong AAA effectively considered strong contractual markets. We see some funds focus specifically on those two markets for those reasons.
We then see a second category, which is lower-rated more complex economies, but with a track record of FDI or structured investment. Thailand, Indonesia, Malaysia, Philippines fall into that category. And we see more appetite for those countries and it tends to come either from industrial sponsors, so strategic investors who are playing a long game or specialist funds who themselves have taken pension money or sovereign wealth money from somewhere else and are investing it through an indirect platform.
The third category is the most complex economies in South East Asia, Myanmar, Cambodia and Laos. From our side, we essentially have seen no financial sponsor interest in those markets at this stage. I think as they develop and grow you’ll potentially see more activity there, but at the moment that’s an industrial sponsor long-term growth opportunity.
Mike Taylor, Chairperson & Managing Editor, Super Review: And yet I’ve heard some superannuation fund trustees and I’m thinking of actually a round table we ran last year, where we’ve had some of their trustees saying that they are actually interested in some of what you’d call really ‘out there’ markets, such as Myanmar and they’re saying is there an opportunity there. So they may not be committing to it, but there’s clearly an interest to it.
Sam Watson, Head of Specialised Finance for Asia, National Australia Bank: The point that I’d make is that what we see in the second and third categories particularly are local domestic sponsors treating that country like a AAA country – so it’s the lowest possible risk profile for them, but what we don’t see is a lot of risk-adjusted return analysis.
When some of our sponsors want to talk about, return expectations in Indonesia the most important thing to recognise is that. The local players will accept a lowish return, because they’re not adjusting for the regulatory risk and the political issues and the factors that we’ve talked about.
Ray Catt, Head of Funds & Insurance for Asia, National Australia Bank: I think when you’re dealing with South East Asia it is an interesting debate when does a commission payment or an introduction fee become a bribe?
Mike Taylor, Chairperson & Managing Editor, Super Review: Or a facilitation fee?
Ray Catt, Head of Funds & Insurance for Asia, National Australia Bank: We have had that long debate and we’ve determined that as an organisation we are going to have zero tolerance on that and not enter into any of those arrangements. And if that for us means that we will not do business in certain sectors, in certain countries, then so be it.
I think for us the focus is very much Hong Kong and Singapore being very well regulated and managed markets.
Alex Boggis, Managing Director, Aberdeen International Fund Managers (Hong Kong): I’m not apologising for facilitation payments, but I know that if you want your passport in the UK you have to pay an extra 50 pounds, I’m not quite sure if that’s the same thing, it certainly facilitates it.
I think just going back to your point about investors in Myanmar and Vietnam, Vietnam is probably more relevant; from our point of view usually people want to buy listed investments, so the size of the markets just makes that untenable, the longevity of the markets from our point of view makes it untenable.
There will be people also that want to invest in unlisted assets and that’s increasing actually from my point of view on institutions, from an institutional client base. So they may be looking or willing to look at property or other private equity type investment. Usually obviously trusting you as a fund manager and/or if we’re running a fund to fund product.
If we’re investing in say a Hong Kong or a Singapore product that we know, again same things, we know the people that run it, we’ve had a lot of experience with them. We know how they’re going to treat us, we know what they’re thinking when they made their investment. If they come up with an investment in Vietnam that makes sense then so be it. So there’s ways of doing things.
Mike Taylor, Chairperson & Managing Editor, Super Review: One of the points that was raised with me when we were first scoping out for this round table was that there are European players who are perceived as doing it actually better than the Australians in terms of working into South East Asia and China. And I just wonder whether the panel actually believes that’s true and if so who’s doing it well and who should we be copying?
Alex Boggis, Managing Director, Aberdeen International Fund Managers (Hong Kong): I don’t know if that’s true or not, I don’t have a lot of experience with Australian investors into Asia. Certainly you don’t see that many, am I allowed to mention fund names, I don’t know?
Alex Boggis, Managing Director, Aberdeen International Fund Managers (Hong Kong): First State I suppose is Australian Scottish, I guess they have a good business in Asia, so they must have a reasonably good model, so they may be someone you want to look at. ANZ is making a lot of noise anyway in the region about the business they’re doing.
Maybe it’s just time [in Asia]. Europe has a lot of people who are outward looking, they’ve looked to Asia for growth, maybe Australia has been more inward looking, maybe a question for you guys more than me. But my experience and with conversations with our office in Sydney is, though it’s changing, a lot of the money stays internally to Australia, because the opportunity has been there.
Maybe that’s reached a certain maturity and people are looking overseas more, maybe that’s why we’re also having this sort of discussion and they’re looking for opportunities. So maybe it’s just about time.
Ray Catt, Head of Funds & Insurance for Asia, National Australia Bank: Yeah I’d agree with that, I think historically the Australian market has been very domestic focused, but I think as the size of funds grow...
Sam Watson, Head of Specialised Finance for Asia, National Australia Bank: Because it hasn’t needed to look out.
Alex Boggis, Managing Director, Aberdeen International Fund Managers (Hong Kong): We’ve done quite well.
Sam Watson, Head of Specialised Finance for Asia, National Australia Bank: All the asset classes were well represented, there’s the transactional volume and liquidity, so they’ve been very domestically focused, that’s exactly right.
Ray Catt, Head of Funds & Insurance for Asia, National Australia Bank: As you have got compulsory contributions into the super funds, those numbers are getting bigger and bigger and as a result you’re going to have to start looking externally to deploy those funds. And then it comes down to looking into new markets where the growth opportunities are. I think it is fair to say that a lot of the US and UK names have been in this market for a long time, some of them 100 years plus and they’ve been very successful.
I think the challenge is really if you’re going to deploy those funds in a growth region, where do you put your money when some players have already been here for a very long time?
Alex Boggis, Managing Director, Aberdeen International Fund Managers (Hong Kong): I think you see the successful ones, because they’re still here, but probably there’s been a hell of a journey.
Ray Catt, Head of Funds & Insurance for Asia, National Australia Bank: And a few have come and gone.
Alex Boggis, Managing Director, Aberdeen International Fund Managers (Hong Kong): Yeah the victors always write the history right.
Alan Wang, Investment Director, Value, Partners Ltd: Based on my own experience, of all the developed market investors, the Europeans are probably the least home-based ones, whilst Australians and to some extent the United States are much more home based than the Europeans.
That’s probably due to the European market itself being much more fragmented, so it’s more used being outward looking in terms of both operational as well as investment opportunities.
When we talk to our investors in Europe they tend to be more receptive of investing into Asia in general, while for the Australians and in North Americans it’s much more difficult, because they already have a very strong home market and for them it’s more alternative investment if you like.
Sam Watson, Head of Specialised Finance for Asia, National Australia Bank: I think Alan’s point is exactly right. It comes down to two factors – it’s asset allocation within a fund portfolio and has already made the point that funds allocate to EM and that includes Latin America as well as some of the Asian markets. In direct investment, that’s an even smaller portion of the alternatives pool. So you’re down to a relatively limited volume and at least on the infrastructure side funds have been able to capital that very effectively within Australia over a long period. But we are seeing funds starting to look particularly at Hong Kong and Singapore and my expectation is that over time, and it is just a time thing, there’ll be a bit of a branching out.
Australia transitioning from the resources boom
Asian investors are already beginning to play a role as Australia transitions from the resources boom to a different economic dynamic more focussed on infrastructure.
Mike Taylor, Chairperson & Managing Editor, Super Review: One last question, and I’ll make it a two pronged question. You are right, Australia has been very internally focused. Why wouldn’t you be, we’ve had lots of holes in the ground digging out lots of minerals and making lots of money for us. That’s now, of course, changing somewhat and I think you’ve actually referenced it before Sam which is basically that the money now flowing into Australia is probably more looking at opportunities to buy government assets and infrastructure than to invest in holes in the ground. And I just wonder whether the rest of the panel sees that as where money from Asia would be looking rather than in a resources boom which seems to be tapering out? So Alan...
Alan Wang, Investment Director, Value, Partners Ltd: I think it’s already happening, I mean I remember a few months ago the China Merchants Group bought the Port of Newcastle. Obviously that’s part of the whole trend.
If there’s one thing that the Chinese Government should learn from the Australian Government it is privatisation. I’ve been living in Australia for more than 20 years and even under Bob Hawke, Paul Keating back in the 80s and 90s privatisation when it first got started, it really bought the benefit into the Australian economy for many years.
I think that as we said in China right now it’s so big and the real challenge is to make it more efficient, more productive. So as part of the reform process, they should learn from Australia in terms of privatisation. And I think what Australia is doing is actually world class in that respect and it does definitely attract many Asian investors towards opportunities in Australia as well.
Sam Watson, Head of Specialised Finance for Asia, National Australia Bank: I know Alex wants to chip in as well, but I think that’s certainly what we’re seeing on the ground. Our house view is that Australia is certainly transitioning from a capex led resource economy to a non-mining driven economy.
The Prime Minister has come out and said he wants, his legacy to be infrastructure delivery. The policy settings are adjusting to facilitate that. There’s effectively a bonus scheme running in Australia now where the Federal Government will contribute 15 per cent of the cash proceeds from privatised assets, which is reinventing new infrastructure. So you get a cash kicker at the state level.
As the regional investors look for more definite opportunities, Australia is providing that clear transparent pipeline. The downside is that the asset cycle has run up in Australia, so Alan mentioned Port of Newcastle, which traded at an earnings multiple of 26.5. We’re seeing a lot of pressure on asset values and more and more recently leverage.
Ray Catt, Head of Funds & Insurance for Asia, National Australia Bank: I think the market almost falls into two parts. I mean you’ve got the institutional money from Asian investors. So Asian institutional money definitely looking at the infrastructure market in Australia and I think it’s a good place for them to deploy their money where they can get involved in those deals the right way.
But if you look at retail money coming out of Asia, then I think a lot of that money is going into the real estate market in Australia. I think there’s a lot of people, not only Chinese money, but Indonesian, Malaysian, making big connections with the Australian economy. A lot of them send their children to be educated in Australia, a lot of them want to retire to Australia. Also Japan, a lot of money coming out of Japan going into Australia. So I think the real estate market is definitely seeing a lot of flows from the Asian market coming out of retail sector. But institutional is I think probably more focused on the infrastructure type projects.
Alex Boggis, Managing Director, Aberdeen International Fund Managers (Hong Kong): Yeah I mean concurring with what everyone said, from our point of view, a hell of a lot of money coming out of Asia, especially China looking for infrastructure opportunities, not just Australia, but Australia has been a feature.
UK, Europe; I guess they see Europe as having been cheap with assets that are up at perhaps fire sale prices. The point being that there’s excess capital available; I think we all know why that is globally.
The Australian question is an interesting one for me, commodities has been such a huge part of the industrial base in Australia. I don’t think it’s ended, I guess they’ll still be looking to extract some. But I mean your economy is so skewed by that, that how do you replace it even if you have to and what do you replace it with? And I would imagine overseas investment, because what have you got 25 million people in...?
Alex Boggis, Managing Director, Aberdeen International Fund Managers (Hong Kong): You need to, I’m sure government is thinking about this, work out where your longer term returns are coming from and investing globally makes sense, you shouldn’t have it all invested in Australia. And I’m saying that as someone that has no vested interest here. So I think Australia has got a lot of questions, but they’re starting from a good place.
Sam Watson, Head of Specialised Finance for Asia, National Australia Bank: Despite a 12 or 14 year resources super cycle, Australia is running an infrastructure deficit of somewhere between the low estimate is $300 billion and the top estimate is 700 billion.
So the expectation is, as we transition away, that infrastructure development both greenfield and brownfield privatisations will fill that gap.
When we came out of the financial crisis there was a lot of talk in Australia about projects being shovel ready and projects that had the capacity to have people on the ground in a very short time. That kind of political idea has re-entered the vocabulary in Australia. So you’re going to see projects be pushed through relatively efficiently.
Alex Boggis, Managing Director, Aberdeen International Fund Managers (Hong Kong): Another concept that’s been at the forefront in Asia recently is asset liability matching and of course in China you have a lot of insurance companies who are looking to invest overseas. I’m guessing they haven’t really looked at asset liability matching as much in the past, because there was so much locally spun growth that you didn’t need to. But expectations therefore of returns are really high, so again the money is going to keep coming out, because returns are falling in China and they need to look for higher returns elsewhere. They may be disappointed about the size of returns they can get though, so these are the sort of things that we discuss with clients all the time.
Alan Wang, Investment Director, Value, Partners Ltd: That’s definitely a long-term trend. Opportunities in China in terms of investment are getting more challenging, because cost of funds are exceptionally high due to shadow banking, etc. So more and more institutions are looking outwards, but of course having the expertise to invest outwards is actually very difficult. So they start off small, but eventually the size will come.