Not literally but it might as well be given the smog in the air last week. Locals attribute it to the coal plants in Southern China and others say it is because of all the cheap fuels being burned by the hundreds, maybe thousands, of container ships and junks crowding the harbor.
But it all seems to work. An economic system with seductively lax rules, unfettered entrepreneurial spirit and no capital gains tax (!) continues to amaze me whenever I am back “home” (I spent much of my teenage years living there). While there last week I met with a number of local investors and asset managers – it is always energizing to see how excited they are to be operating in the shadow of China. Thought I might share just a few of my observations and highlight some of the recurring themes from those conversations – and close with a big insight:
- Everyone is looking to expand into the numerous frontier Asian markets, especially China. No surprise there but people are also talking about Myanmar and Mongolia (apparently the miners in Mongolia are absolutely killing it). The other two most talked about countries were Malaysia and Thailand.
- With this diversity and fragmentation many found the landscape confusing and chaotic. The laws and financial regulations in many of these regions are unclear, undocumented, inconsistent, poorly enforced yet the growing financial assets and wealth is intoxicating. I often heard comments that “we just have to be here.”
- Consistent with the above, there was much discussion about distribution and access. Hong Kong, after much concern with the hand-over back to China in 1997, continues to be the undisputed gateway to China. But there was anxiety on how best to access (i.e., sell to) the emerging Chinese middle class. The definition of the mutual fund laws are under active debate now in Hong Kong. Today most mutual fund products are sold through less than a handful of local Chinese banks.
- Surprisingly some fund managers saw the rise of social media as an important customer acquisition tool.
- Local tax laws in China – a mess. Capital gains laws are still not resolved.
- A lot of discussion around brand and the legitimacy of a US brand. Brands in the US have been imbued over many generations with attributes of trust and strength, but they today have no value in many emerging Asian markets.
- With the “one child” policy China is confronted with real challenges on best to support an aging population which has modest financial assets set aside for retirement. Pension systems are being overhauled and minimum contribution levels are being increased. Fortunately, when compared to the US, China and many Asian countries have consistently greater personal savings rates.
The subtext to all of this is the unspoken gradual transition of a population from having to rely solely on the state for all of one’s needs. That is what I find so fascinating with the maturing of the financial markets in Asia. With sophisticated new investment products, and with greater understanding of how these products are meant to work, the state is gently moving people to be increasingly self-reliant and empowering them to manage more of their own well-being.