KKR, HSBC talk up China opportunities after lengthy sell-off

KKR & Co and HSBC Asset Management sounded an optimistic note on China even as global investors withdraw billions, underscoring signs of rebounding confidence in the world’s second-largest economy.

“We do think that China is investable,” said KKR executive Kate Richdale, speaking at a Bloomberg New Voices event in Hong Kong. “We continue to invest in China.”

With global fund allocation to China at a five-year low, the room for a further sell-off is significantly reduced, according to HSBC Asset Management. There are signs that investors are gradually returning to the market, suggesting that China is near the bottom.

“We started to see some regional active managers cutting back their underweight position in Hong Kong and mainland China,” said Daisy Ho, chief executive officer for Asia-Pacific and Hong Kong at HSBC Asset Management, speaking at the same event on Wednesday (Apr 10). “We see the sentiment has improved.”

Starting in February, managers began adding back to the tech sector and growth stocks, though investors need to see earnings revisions before there are “sustainable inflows” to the market, she added.

Consumption and the “new economy” in China are “definitely of interest”, said Richdale, adding that the New York-based investment firm invests in sectors including pharmacy chains, hospitals, white liquor and pet food in the country.

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“If you think about 850 million odd of millennials, you know, these are the consumers that we invest into,” she said. The green economy and industrial automation are also of interest, said Richdale, KKR’s head of global client solutions institutional sales & family capital for Asia-Pacific.

India growth

India is seeing rising demand from investors, with HSBC Asset Management projecting some US$100 billion of flows into the fixed-income market over the next three to five years, lured by global bond index inclusion.

“India is a very obvious choice for investors,” said Ho. “Not just on the equity side, even on the fixed-income side.”

India has become a key market for HSBC as it looks to expand its operations in Asia. CEO Noel Quinn is targeting boosting the bank’s wealth business – including asset management – in India and China on par with its key market of Hong Kong.

HSBC Holdings acquired asset manager L&T Investment Management for US$425 million to build out its wealth and investment business in India.

Private credit

Both investment managers are advising clients to put money back to work.

KKR and HSBC Asset Management see rising demand for private credit as the nascent asset class gains traction in the region. Global investment managers including PGIM and Blackstone are intensifying their focus on private wealth as institutional funding dries up.

KKR has US$553 billion of assets under management globally, and credit is the largest piece, amounting to US$219 billion, according to Richdale. The firm’s funds target returns ranging from high single digits for safer assets to high teens for higher risk, she added.

KKR refers to markets being at a “higher resting heart rate”, with higher inflation for longer and higher interest rates for longer.

“So returns will naturally have to reflect that,” she said.

At KKR, less liquid, alternative assets make up an increasing percentage of the portfolio, not only for institutional investors but also family capital, said Richdale, who took on her latest role in March, as the firm aims to tap growing corporate and family wealth in the region. She previously worked for Goldman Sachs Group in Hong Kong.

HSBC has seen demand for private credit in the insurance segment, according to Ho. The UK lender has also been building up its alternatives business, agreeing to buy Silkroad Property Partners Group, a Singapore-based real estate manager late last year. BLOOMBERG