With risks largely priced in, 2024 will be a better year than 2023: Fidelity

SINGAPORE - The year 2023 was a challenging one, with central banks hiking up interest rates, a regional banking crisis in the United States, two wars, increased geopolitical tension and a moribund Chinese economy.

But most of these risks have been priced into the market in 2024. Besides retreating inflation and a potential Fed pivot later this year, for Asia-Pacific (Apac) investors, there is also more growth visibility in markets such as China, Japan and India in 2024.

These were some of the thoughts shared by Mr Rajeev Mittal, managing director for Apac of US global investment giant Fidelity International.

“Markets are seeing that inflation is getting under control and we expect rate cuts by the Fed later in the year,” he said in an interview with The Straits Times. “So if you put on the lens of looking ahead into 2024, while it might not be straightforward, the direction of travel is positive.”

He does not see signs of a potential deep recession in developed markets in 2024.

He said: “While there may be a slowing down of the economy, we think the strength in the labour markets and the balance sheets of companies means that we’ll probably see a mild recession in the US and Europe.

“In Asia, we are still seeing a lot of growth. In China, despite slowing down, we expect to see 4 per cent to 5 per cent, in Indonesia 5 per cent, India probably 7 per cent. The growth story in this part of the world is much more robust, it’s about finding the opportunities.”

Fidelity International is the global arm of the US financial giant Fidelity Investments, which offers investment solutions and retirement expertise to institutions, individuals and their advisers around the world. As at Sept 30, 2023, Fidelity International’s assets under management (AUM) were around US$714.3 billion (S$960 billion), a 22.7 per cent increase from its AUM of US$582 billion as at Dec 31, 2019.

It has more than 10,000 employees worldwide, based in 25 markets across the Asia-Pacific, Europe, the Middle East and South America. It celebrated 20 years in Singapore in 2023, has been in Japan for more than 50 years, and in Hong Kong for 40.

Fidelity’s biggest recent achievement was the establishment of its on-shore business in China, where it received its licence in December 2022. It launched its first mutual fund to retail investors in China in early 2023.

“Today, we’ve raised close to US$1 billion of assets in our first year of operations,” Mr Mittal revealed. “This is essentially domestic capabilities for domestic investors. And if you think about the dynamics in the region, China is a massive opportunity for asset managers like us. If you think about the market, it’s probably the largest market outside of the United States today, and it is only going to grow. And we’re one of a handful of wholly owned foreign asset managers in China.”

Having launched its first China fund in April 2022, its second fund in November 2023 and being in the midst of launching its third fund, Fidelity is poised to get deeper into China’s retirement and pensions space.

“With their ageing population, it is clear that there is a massive need for solutions and investor education on retirement,” Mr Mittal said. “There’s also a big push from policymakers in that space. And Fidelity’s DNA has been the retirement space, that’s where we have a leading position in many markets.”

While upbeat about the China market, Mr Mittal also cautioned that investors have to be patient.

“You have to take a long-term perspective and you have to have ample resources to get it to work. You’ve got to build credibility and deliver on what you say you can do. And Fidelity is a private company that takes a very long-term perspective.”

Mr Mittal, who is based in Hong Kong but oversees the entire Apac region up to the Middle East, sees policymakers in Beijing working hard to bolster investor and consumer sentiment in 2024.

“I get the sense that there will be more of a concerted effort to draw a line in the sand with regard to the current pessimism, which is a good thing. And I think this pessimism is reflected in asset prices, which in turn means that valuations are looking attractive. People are still looking for some triggers to put their money to work and I expect to see some of that coming through in the coming quarters.”

He is also upbeat on Japan and India.

“In India, there is a huge amount of activity in the corporate sector that is taking place and is clearly delivering on investor expectations as well,” Mr Mittal said.

“In Japan, the pivot of governance and... inflation, leading to more consumer spending power is beginning to come through. With the weaker yen, there’s been a big boost in exports and tourism. Despite the fact that Nikkei is hitting all-time highs, I think investors are not as invested in Japan as they would like.”

Across the Asia-Pacific, he sees investment grade credit as a promising bet. Corporate and household balance sheets across Asia were still strong, and institutional and wealth markets were getting more active across the region. He also sees attractive prospects in real estate, private credit, direct lending and private equity.

“Part of the 2023 story has been, because deposit rates were at 4 per cent to 5 per cent, no one was willing to take any more risk and put money to work elsewhere. I think the shift that is going to take place in 2024 and 2025 is that we’ve peaked on those deposit rates and the trend on that is only downwards. So the question is, where do you put your money to work now?”

“Asia presents a massive opportunity for asset managers. In China alone, there is US$4 trillion in onshore mutual funds markets, which is probably the biggest outside the US,” he added.

Fidelity expects the asset management industry in Asia to grow at between 8 per cent and 14 per cent per annum over the coming years, and sees itself growing at an even faster rate in this space.

What about potential downside risks?

“I try not to worry about things I can’t control, so I tell my team to focus on things we can control because that’s where we should spend our energy on,” he said.

He added: “While it doesn’t keep me up at night, today’s geopolitical environment is not easy or straightforward. But it’s something we’ve all got to live with now, because it’s become part and parcel of our environment. We’ve got to adapt with it. Even things like the role of AI in the future and cyber risk, these are new things that are coming onto our table, and we’ve got to start figuring out their impact on our daily lives and how we run businesses.”