We discuss with Arthur Lau, lead portfolio manager for the PineBridge Asian Bond Fund – Provident Fund Units, on Asian Bond space.
Germaine Share: Hi, I'm Germaine at the Morningstar Hong Kong fund awards 2019. I'm here today with our Arthur Lau, the portfolio manager of the PineBridge Asian bond fund, who is the winner of our best Asian bond category this year.
Hi Arthur, congratulations on the win and thanks for being here with us.
Arthur Lau: Thank you very much, it’s being an honor to be here.
Share: Thanks. So, I want to ask you some questions about the fund, it obviously had a very successful 2018, ranking third among other Asian bond funds. what were the key drivers of alpha?
Lau: I suppose like you, everyone, every fund manager in the markets know about the macroeconomic situations, which was very challenging in 2018, in particular changing of many dynamics including the political situation and the financial conditions. I think one of the key success factors that we have is we have done our homework not just on the regional perspective but also from the global and local perspectives. We have a strong team, I have people on the ground looking at not just on the company level but also on the political situations because there are many countries that had election in 2018 and combine that with our global knowledge from the DM markets, so we are able to position ahead of many major events in the market. At the same time, we had 1 portfolio is slightly more defensive because the expected volatility in 2018, which turned out to be very successful to us.
Share: Arthur, China is obviously becoming a bigger part of your investment universe. what is your outlook for the country and how are you positioned there?
Lau: I think this is a very important question to the Asian bond markets, as you highlight China now is represented more than half of the market capitalization in terms of the Asian US dollar bonds, and to be honest that's no shortcut to be successful in the investment in China. Giving you an example, we actually cover around 300 different Chinese issuers, but at the same time we only invest in around less than half of that. You can see that like we do not ignore those names that we don’t like, we make sure that we understand the market dynamic, we understand individual companies’ profile. But at the same time you cherry pick, we just pick the names that we have conviction. Secondly, we understand the business model, able to monitor it over time of through different business cycles, so I think this is important to be successful in the Asian bond market, given the fact that like China is the largest exposures and potentially to be even more important in the future, because of the other changes on the policy.
Share: Arthur, just trying to understand that a little bit further. Are there any sectors within China that you have a preference for?
Lau: I think it's important to understand like China is still growing in terms of many dynamics, so you really need to understand how the policy agendas are being evolved, and what business cycles we are, so there is sort of no one set of sectors we like at any point of time, but it really depends on lots of factors.
At the moment, we like the infrastructure sector, because we know that China want to continue to grow to the quality of the growth, so the infrastructure is one thing that they focus on. And the second sector that we like, is some major financial institutions. We shire a way to smaller banks and non-banks financial institution at the same time. Meanwhile we also like some of the sectors that are more in line with their so-called service and consumption theme in China, because that's what China want to grow from the industrial manufacturers to more like service and consumption to become more developed and more resilient in terms of the business cycle, so that's how we pick our sectors over time.
Share: Great, so sounds like you're quite selective within China. Beyond China where are you seeing the opportunities?
Lau: Again, it’s depended on the cycle. I think at the moment compared to 2018, we have turned more sanguine about Indonesia given the fact that they are close to the election and the current Joko government seems to be quite certain that they are able to win the elections. We certainly see a lot of positive leading indicators from the ground, about the changing of the sentiments. We are a little bit cautious about Korea because of many things. Number 1 is the potential trade dynamic that US and China will develop and that will have a potential negative implication to countries like Korea and Japan, or even Taiwan. So, I think that are something that we are looking at at the moment.
Share: Great, so just rounding up. Can you give us your outlook for Asian bond market?
Lau: I think first of all the volatility is slightly to be even higher than last year, given somewhat like moderating fundamentals, the growth outlook certainty looks weaker this year, but at the same time unlike 2018, the global and regional financial conditions has turned from overly tight to more neutral to likely to be more accommodative, so these positive technical are likely to be supportive to the market. At the same time as I highlighted that it's working against the softening or moderating fundamentals, so you need to really know what you want to buy in terms of this shift of dynamic.
Share: Great, thank you again and congratulation on the win.
Lau: Thank you very much.
Disclosures: Morningstar acknowledges that any opinions expressed in the recorded session represent the views of the manager, valid as of the date or period of time referenced, and are subject to change without notice. There can be no guarantee that any of the opinions expressed or any underlying position will be maintained at the time of this presentation or thereafter. PineBridge Investments are not soliciting or recommending any action based on this material.
View all Morningstar Hong Kong Fund Awards 2019 articles here.
