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BEA cautious on high yield

The low yield environment of the last couple years sent investors flocking to high yield fixed income products, up to the point where we hear about a potential bubble possibly forming, said Alfred Mak, head of investment products and advisory at the Bank of East Asia.
As the product gatekeeper for BEA, Mak is cautious about high yield products, and the bank recently redeemed some of its position in the Allianz US High Yield fund
“[The redemption] is a reflection of the concern we have. While we don’t believe there will be an imminent crash in high yield, the risk payoff is not as attractive as it used to be and we wouldn’t suggest holding big positions. 
“We’re recommending clients do not go either risk-on or risk-off. Most of our focus is on balanced funds. It’s a transition. We are at the juncture between pure fixed income and pure equities. 
“These days we try to offer investors a choice of balanced funds and a bit more focus on the equities side.”

China connections

Mak said valuations look appealing in China and he expects the launch of the Hong Kong-Shanghai stock connect to be a positive catalyst in terms of re-rating the A share market. 
“On the Hong Kong side, we expect a re-activation of client interest in the [China] market, which has been long neglected.
“China onshore investors, by comparison, will likely be interested in Hong Kong stocks. We are working with BEA China to come up with some unit trust products for Chinese clients on top of buying pure equities. We work with multiple vendors to source these products.” 
Mutual fund recognition between Hong Kong and China, when it happens, will raise the Chinese fund manager profile outside of China, he added. 
“We have already gone through this exercise two-three years ago, when RQFII was rolled out in Hong Kong. Back then, RQFII was only given to pure local China-based managers, so you either work with those guys or you don’t offer the products and we decided to work with them even though we were not familiar with some of the names before.”
However, in China, BEA prefers to work with the big names like CITIC on the asset management side.
“We try to work with big players in China because the due diligence for Chinese asset management companies could be challenging if you want to work with small players, who might not have enough documentation.”

Part of the Mark Allen Group.