Institutional Conversations

0:06

Hello and welcome to another Institutional Conversation podcast at Invesco.

0:11
I'm Tom Digby, Head of ETF Distribution, and I'm delighted today to be joined by our strategist, Paul Schroeder.

0:16
Paul, welcome.

0:17
Hi, Tom.

0:18
How are we doing?

0:18
Yeah, all very well.

0:20
Look, we've been listening to a lot of in the press and in the media around some of the index inclusion events that are happening with the mega IPOs this year.

0:26
We've recently just had one and we've got a few coming into the back end of the years.

0:30
But when we look at indices as the ETF geeks that we are, we're starting to see concern about differences between index inclusion events across S&P 500, NASDAQ 100 and MSCI USA along with a few other indices.

0:42
What do you think the main differences are and what do you think investors should be really wary of during this time?

0:47
Yeah.

0:47
So I think investors want to keep in mind and take a look at the different index providers and what sort of parameters they have around fast entry.

0:56
With my coverage primarily being around NASDAQ 100 and NASDAQ related indices.

1:02
It's something that really has dominated a lot of the conversations we've had since the new rules were implemented back in May.

1:09
I think what investors really need to keep in mind is the timeline as to when that given index would include a newly listed IPO and also what weight that stock might potentially enter that index.

1:21
Yeah, it's interesting.

1:21
We've recently seen S&P come out with a sort of no to a fast track entry inclusion and obviously a few months back NASDAQ 100 concluded their paper with they wanted to proceed with that.

1:30
What do you think the difference between the two providers were and why do you think they made those decisions?

1:35
Yeah, I wasn't necessarily as involved within the S&P consultation as I was the NASDAQ one.

1:40
One thing that I will say with NASDAQ and the conversations that I did have with them is that they're really striving to have the NASDAQ 100 be representative of the US large cap area of the equity market.

1:54
So in their line of thinking, if you have a new company that IPO is at a very large valuation, it would be prudent to have that company included within the NASDAQ 100 within a timely fashion.

2:06
So I think that's the key point.

2:07
I think it's trying to address investors concern about how to capture large cap growth.

2:10
You're seeing these big IPOs come to market to raise capital, to reinvest, to reinvent themselves and to reinvent their industries they're in.

2:17
When we think about that fast track entry inclusion process, just talk us through some of the timelines and some of the things investors should be aware about during the days preceding the listing of the particular stock.

2:28
Sure.

2:28
I think the two most important factors that investors have to keep in mind, our timeline and what potential weight a company will enter per the fast track rules.

2:38
I will start off with timeline.

2:40
So there are three key days that you want to keep in mind.

2:43
The first being seven days after the IPO, which is where NASDAQ will take a look at a company's total market cap to determine if it will be placed in the Top 40 of the NASDAQ 100.

2:55
At the same time, they will take a look at the free float of that newly IPO company, and if that free float is less than one third of the overall total market cap, they will assign a 3X multiplier to that free float, which will determine the modified market cap weight of that newly IPO company into the NASDAQ 100.

3:15
The next state that investors want to keep in mind would be day 10 after the IPO.

3:20
That is when NASDAQ will make the official announcement as to the stock being included, what weight it'll be, and what date it'll enter.

3:28
The last state that investors want to keep in mind would be day 15.

3:32
Day 15 after the IPO would be the earliest state that a company could enter the NASDAQ 100 through the fast entry parameters.

3:41
Now there is a potential that NASDAQ could determine that after day 15 would be most appropriate for that company to enter the NASDAQ 100.

3:49
We would know that on day 10.

3:51
So the first question we've been getting from investors at this point is what's Invesco doing ahead of that day 15 to be able to get in front of this potential inclusion into the index?

4:00
Well, the great thing with Invesco is when it comes to index based passive products, our job is to track that index as closely as possible.

4:10
Now when you think about how that stock may enter the NASDAQ 100, there isn't necessarily much Invesco has to do to prepare for that.

4:19
We are looking for guidance from the index provider which is NASDAQ and then looking at what day they say that company will enter the index.

4:27
Prior to that date, nothing changes with the index or the fund because that stock has not entered yet.

4:33
So that's a really interesting point.

4:35
So we're taking a very much a passive approach.

4:36
We're waiting for the index rules to be announced and then once we know what the weights are within the index, then we can go out there and purchasing it.

4:43
Now the actual execution also is raising some concerns in the media that you're going to have all of this passive flow driving potential stock performance.

4:51
What do you think of what do you sort of talk to investors about some of their concerns that they have with this?

4:55
Sure.

4:56
So the primary questions and concerns that we have been receiving is that you could have a multibillion dollar purchase coming from an issuer into a stock that may only have a free float of a very small percentage of the overall total market cap of that newly IPO company.

5:13
What I would say is that U.S.

5:15
equity markets are extremely efficient.

5:18
We have seen high liquidity in newly IPO companies and Invesco's trading team is very mindful of how that trade is placed to try to minimize the overall impact of price with that newly IPO company.

5:30
Yeah, because of the size of some of the more recently newly IPO companies, I think this is getting a lot more noise in the press than potentially some of it deserves from our perspective.

5:38
But when you think about some of the more potent factors into driving some of that price, we keep mentioning the free float, like how important is this free float relative to the full sort of market capitalization of the stock and, and are there certain events later on this year that actually going to potentially impact the price of this further?

5:53
That free float number is extremely important.

5:55
I mean, what you're ultimately seeing, especially if that free float is underneath one third of total market cap, that is really what's determining the weight within the index.

6:04
So as you see free float increase, whether that's due to stock performance or different unlocks that come, whether it's from individuals who hold that newly IPO company's stock or other institutions, that free float more than likely will increase as time passes.

6:21
And as that free float increases, the index will reassess on its quarterly rebalance schedule and annual reconstitution schedule to determine what that new weight will be within the index.

6:33
So before we decide to like dive into the actual dynamics of the stock itself and the trade ability of the stock itself from a liquidity standpoint, how are Invesco sort of set up to deal with these events?

6:43
When we do get that index announcement and we do start to buy, I think back to sort of July 2023 when we had that special rebalancing and $53 billion of two way turnover, December, the annual balance and more recently some other stock additions into the index. (Source: Nasdaq, July 2023)

6:56
These events have happened before.

6:58
Again, it seems to me that there's a lot of noise out there around this particular stock because of the size of the company, but also in the back end of the year, we're going to see other things as well.

7:06
How do you think Invesco really are set up to ensure that the execution is in line with the index that we're driving as much value for investors as possible?

7:14
Sure.

7:14
It's not unusual for Invesco to place very large trades around quarterly rebalances, special rebalances or even one off includes perhaps due to an index constituent change.

7:26
So if we take a look at perhaps recent IPOs, the size of that potential entrant into the index would be relatively small compared to previous events that we've seen.

7:36
Invesco has extensive relationships across many counterparties on the street and they're able to mitigate those factors across the board.

7:45
Combine that with extensive secondary market liquidity, we imagine impact on price to be minimal.

7:51
So that's a really interesting point.

7:52
I think it really helped to be blessed being a manager at scale in the size that we do, not just in passive but inactive makes our flow quite attractive to the street.

7:59
And therefore, when we do come to the street with these trades, we get sort of priced up accordingly and aggressively.

8:04
And to ensure that execution is as efficient as possible.

8:07
And therefore we reduce the tracking error or limit the tracking error as much as possible when we come to execute these large trades.

8:12
Just rewinding back to the previous point around the trading and liquidity of the stock, you mentioned about some of the lockups that are going to happen later on during this year.

8:20
And as other IPO's come to market, those lock ups also they're more flows off those stocks might become available.

8:25
Let's just think about the actual stock itself post IPO.

8:28
It's very rare that, for example, straight at the bell, you get an opening trade.

8:32
You normally wait for half a day as we've seen recently, then you get some sort of noise and some trying to find the price stability in the next few days.

8:39
But there's other mechanisms that come online that also

8:41
Drive liquidity into stocks.

8:42
You want to just talk briefly around some of those events that investors should watch out for that add liquidity to that stocks ecosystem?

8:48
Yeah, sure.

8:48
With any new IPO, there are individuals and institutions that have been able to participate in gain exposure to these companies equity earlier in the process before it's gone public, whether it's rules, regulations or things stipulated by the IPO.

9:03
Some of those shares are not available to be traded immediately.

9:06
But as time passes and different events happen such as quarterly filings and earnings announcements, those shares now become available to increase not only trading volume, but also the overall free float in the market.

9:18
Throughout all the conversations that we've had and taking a look at some of these newer IPOs, one could argue that these different unlocked periods could potentially have a greater effect on the price of the underlying stock than perhaps an index inclusion.

9:32
Yeah, we're also thinking about other instruments that will go live on the particular stock itself, which will bring more participants to the market.

9:37
As you mentioned.

9:38
I think the wider view with institutions and IPO seems to be let's wait until we get some price stability where we can really value the company and maybe a set of earnings results to come public after that.

9:48
That will probably bring a larger institutional crowd to participate in the stock if they think it's a favourable stock for their portfolios.

9:53
But actually you've got other events that are happening such as options going live, for example, which will bring more sort of speculators and hedges into the market as well.

10:00
You're exactly right.

10:01
I mean, with any newly listed stock, it does take a little bit of time for things like option trading and structured products such as swaps to come and be introduced in the market just due to different timing aspects of that newly trading company.

10:15
Once that full ecosystem around that company is trading, it allows not only individuals but also institutions more effective tools to hedge risk and gain exposure to that company.

10:28
Thank you very much for your insights.

10:29
I think we're going for a very interesting time for many index based investors and inclusion should definitely be a topic people should watch out for going forwards into the rest of this year and onwards.

10:37
Please visit our website should you wish to find out more thought leadership pieces on this particular topic.

10:41
And I thank you for joining me today.

00:06
Hello, everyone.

00:07
Welcome to our podcast, Invesco Insights Institutional Conversation.

00:12
I'm David Chao, Global Market Strategist for Invesco Asia Pacific, based here today in Hong Kong, our regional headquarters.

00:22
Today we have with us Paul Jackson.

00:24
He is the global market strategist for Invesco EMEA, joining us from our London office.

00:31
So Paul, the title of our 2026 major outlook is a world disrupted?

00:38
Resilience endures.

00:41
Can you give our listeners a little more context of what that title means to you and then what are some of the initial key takeaways that our listeners should have? Thanks.

00:52
Yeah. Hi, David.

00:53
Always a pleasure to be speaking with you.

00:57
I think we, you know, if you think back to the beginning of the year, the global economy looked as though it was doing very well, was going to improve.

01:07
Then we had the war with Iran that started, and that brought the disruption, which was the reduction in the supply of energy coming out of the Middle East with the closure of the Strait of Hormuz.

01:22
That brings higher energy prices, which could threaten the global economy through lower growth and higher inflation.

1:33
But all of the evidence that we've seen so far suggests that actually the global economy has been pretty resilient.

1:40
Yes, inflation has gone up a bit, but not enormously.

1:45
Core inflation is relatively in a relatively good place, but more importantly, the growth indicators from the US, for example, retail sales, industrial production, the labour market into the second quarter have been strong and seem to be improving.

2:05
We've had similar readings from the UK for example, but if you look at surveys such as PMI, so the PMI surveys, especially on the manufacturing side across the world have not only been stable, they have been improving through March, April and May.

2:26
So that suggests to me that the global economy is not suffering in the way we may have feared.

2:31
So that's what we mean by resilience. That's a very good point to make.

2:35
If you asked me just a few months ago about the outbreak of the Middle East conflict, I probably would have surmised that Asian stocks would be flat to down.

2:46
Yet many Asian indexes continued to hit an all time high, very much driven by both economic resilience.

2:56
Trade continues to be healthy.

2:59
The AI dominance of certain places in the world, whether if it's Korean memory or Taiwan semiconductors or high tech manufacturing in China.

3:12
I think the Asian economy has shown a remarkable level of economic resilience and I think that this is going to continue to be a pretty good year despite the disruption that we've seen.

3:28
Paul, I just had a question regarding some of the other structural components of our outlook, especially with the trajectory of the US dollar that certainly has implications for many of us in Asia.

3:43
What’s the outlook for the dollar for the rest of this year?

3:46
We think the dollar will weaken.

3:49
That's what we thought at the beginning of the year.

3:52
We have disruption with the war in Iran.

3:54
I think naturally the dollar has strengthened a little bit as a result of that disruption because of the energy independence of the US.

4:03
the US economy is going to be more protected if there are energy shortages.

4:08
But to be honest with you, the dollar has hardly gained anything.

4:12
It has gone up a touch, but not a lot.

4:14
And I think that speaks to the underlying weakness of the dollar.

4:18
The Fed I think is still amongst major central banks perhaps the most likely to, if not reduce rates, keep them where they are.

4:28
And so interest rate spreads probably move against the dollar.

4:31
The dollar is expensive.

4:33
So we think the dollar will weaken through the rest of the year, which I think in general is probably good for emerging market assets.

4:43
So if emerging markets, do you think that they can outperform US markets if the dollar weakens or can they still outperform if the dollar is strong?

4:56
Well, recently they have been outperforming the US If you're thinking about equities, emerging markets have been very strong. (Source: Bloomberg, as of 29 May 2026)

5:04
And I think you touched on one of the reasons why the AI theme has been driving some specific markets.

5:11
Also to be fair, rising energy prices do help some emerging markets, not all, but it does help some.

5:19
But emerging markets have been strong despite that disruption in the dollar and the dollar strengthening a tad.

5:26
And I think that certainly if the dollar weakens, then we will see more of that in a more generalized outperformance across emerging market assets.

5:36
Understood. You mentioned AI, certainly the elephant in the room for a lot of investors these days.

5:42
What's the outlook here on AI?

5:45
Is there still more room for AI related stocks for US AI stocks to go up another level?

5:53
Are we, are we hitting, you know, a frothiness at this point?

5:57
Well, I guess it comes down to how long is a piece of string.

6:01
And you know, these trends can always go much further than you ever imagined.

6:06
And we can't argue with the fact that the theme is really strong at the moment.

6:13
Having said that, yes, I think there is a certain frothiness.

6:16
So  I think we do need to be a little bit careful and perhaps a bit more selective in the way that the theme is being played.

6:25
But what is also of interest to me is the way that the theme plays out in terms of benefits to users.

6:32
So far, the benefits have all been for the enablers and that can't continue if the users are not getting a benefit.

6:39
So I think we need to start looking at, OK, which parts of the market, which sectors, which companies will start to get a benefit as a user of this new technology.

6:50
And perhaps that's an interesting area for exploration over the rest of the year and into 2027.

6:58
But I think it's still going to be there as a theme in the background.

7:01
I agree.

7:01
I am actually a big proponent of AI as an investment theme.

7:09
That's going to be with us for a very long time.

7:11
And then while US AI related stocks may appear at full valuations, I still think that there are much more attractive places such as Korea and Taiwan.

7:23
There is currently an unquenchable thirst for companies to lock in supplies of AI hardware and the valuations in Asia are a lot more palatable when compared to other places of the world.

7:37
So I think that a theme for the second-half of this year continues to be an optimism surrounding AI, but that this out performance in AI related stocks could start to broaden out to other segments of the AI spectrum and to other regions of the world.

7:55
Now, Paul, on the topic of then also diversification, whether if it's out of AI or to other regions, what are some other assets that you think investors should be diversifying in the second-half of this year?

8:09
Well, I guess first of all, David, I should just mention that given that idea of resilience and economic acceleration, which is predicated on the thought that the conflict in the Middle East will not endure for too much longer, that the Strait of Hormuz starts to open up and the energy prices come down, I think that will cause investors to focus on more cyclical assets and more cyclical parts of the market.

8:35
So that still includes equities, but I think it gives you a broadening back into sectors such as industrials, metals and mining stocks, particularly focusing on the industrial metal side, perhaps focusing starting to focus back on financials again.

8:54
So I think that will give you a broadening of performance away from what we've seen in recent months, which has been very tech oriented. (Source: Bloomberg, as of 29 May 2026)

9:02
So that I think will be good.

9:04
It helps the equity market as a whole, but gives us broader performance.

9:08
Other assets that I would highlight would be if you're looking in the alternative space, you know, within private credit at the more conservative end of private credit things such as AAA rated CLOs.

9:22
And I would also look at bank loans, leverage loans.

9:26
They are still offering relatively attractive yields. (Source: Source: US CLO AAA investments represented by J.P. Morgan CLO IE AAA Index. An investment cannot be made directly in an index. Past performance does not predict future returns. All data as of 31 March 2026.)

9:29
They do I think give diversification because if we are wrong about the outlook for energy prices and inflation goes higher and bond yields go higher, these assets have virtually zero duration risk.

9:41
So they are very stable in that sort of environment.

9:44
So, it's a good stabilizer within a portfolio.

9:47
And on the same topic of diversification, real estate does seem to have a better correlation with inflation than many other assets and very limited correlation with other assets.

9:58
So real estate I think is a good diversifier.

10:02
So I think there are plenty of ways of getting exposure to the cycle, but also ways of getting good diversification.

10:10
That's great to hear diversification to other parts of the investment section, whether if it's private credit or real estate, you know, that sounds like a good idea.

10:21
Now our outlook seems quite optimistic for the second half of this year, but I was wondering what are some of the key risks to this optimism?

10:29
Well, the first risk of always, as I always say, is that we're wrong.

10:32
And if the obvious way that we can be wrong is that energy prices go higher than the Strait of Hormuz doesn't open, this conflict continues and that energy prices, when I say go higher, I mean oil going to $150 to $200 .

10:49
And but then, you know, if you're getting to $200 and above, you're standing to get the sort of price movements we saw in the early 1970s.

10:57
So the inflation risk becomes much greater.

19:53
Central banks tighten to prevent that inflation risk materializing.

11:05
And that I think would not be a good environment for risk assets in that sort of environment.

11:10
You want to be in those low duration assets that I've already mentioned, AAA rated CLOs

11:16
And, and of course commodities do give, you know, they do help in that sort of setting because the, it's the energy prices that are rising that are causing the problem, but they help you as an investor in commodities.

11:28
So I think the probably, the big risk that I would focus on and that keeps me awake at night if I were struggling to sleep.

11:36
Other, you know, other risks are always there in the background, things like debt mountains that are building up in the developed world and so on and so forth.

11:43
But I would really focus on the Strait of Hormuz and the opening up of that link to the rest of the world.

11:49
That's right.

11:50
I'd say that for me, perhaps the biggest risk to our pretty optimistic mid year outlook is that inflation comes back, whether it because of all the fiscal stimulus that's going on in places like Japan or Europe or you know, corporate tax cuts in the US, that inflation could be a stickier problem than previously imagined.

12:12
Now this has come to the end of our podcast session.

12:15
So if I had to summarize, our key takeaways from our outlook is that economic resilience has endured and that's reflected in stock markets, many of them touching all time highs despite the disruption and the shocks from what's going on in the Middle East.

12:31
And so we continue to have an optimistic perception of the global economy and markets heading into the second-half of this year.

12:40
We think certain assets at emerging markets, international equities could outperform the US given where evaluations are given the monetary and fiscal support of in places in Asia and in Europe.

12:53
But we also think that investors should become more diversified given the risks to over concentration of certain sectors and in industries like AI in the in markets and other parts of the investment spectrum such as private credit or real estate could be a benefit for this diversification.

13:11
Now please join us next time for our Invesco Investment Insights Institutional Conversations podcast.

13:18
So if you enjoy today's discussion, stay tuned.

0:06
Hello, everyone.

0:07

Welcome to Episode 3 of our Institutional Conversations podcast.

0:13

I'm Shuxing Deng, Senior Portfolio Specialist at Invesco.

0:17

Today I'm joined by two of my colleagues, Norbert Ling, Head of Fixed Income Portfolio Management, Asia Pacific, and Fiona Yang, Fund Manager of Asia and Emerging Market Equities.

0:29

So I think it's fair to say that investors are navigating a complex market environment right now, with global markets responding to a range of macro and geopolitical developments.

0:40

In today's conversation, we will use the current backdrop as context but take a step back to explore how Asia assets across both equities and fixed income fit into globally diversified portfolios and what role they can play through a different market environment.

1:00

So, so with that in mind, Norbert, from a macro perspective, how do you see these developments impacting the Asian macro environment?

1:10

The question that we are asking ourselves as investors is what's the impact on growth and inflation outlook?

1:15

There has been a lot of focus on inflation, and the question is whether it's something short term or more permanent from an inflationary perspective.

1:23

And also what is the response of governments from a fiscal perspective,

1:26

For example, the level of fuel subsidies that may be used to help to cushion the impact of higher oil and energy prices?

1:33

As active investors, we do spend a lot of time dissecting supply chain implications and that remains very critical when you look across from upstream to downstream and in various different sectors.

1:43

From a macro perspective, energy security has always been very important for many Asian countries.

1:48

And we do also recognize that renewable energy is part of the tool kit to help to mitigate the energy security question for many economies.

1:56

And taking a very high-level bird’s-eye view, if you look from an Asia perspective, Asian central banks actually navigating the current developments from a very good position of strength.

2:05

If you look at inflation, it's actually below target in most geographies. And Asia ex Japan CPI is below 1% in 2026 (source: Bloomberg, as of 27 Mar 2026) versus being close to 4% in 2022 and 2020 versus the 15-year average of 2.5%. (source: Bloomberg, as of 31 December 2025)

2:19

So inflation at the current level is low versus the historical levels and many countries have different tools to help to navigate this macro environment.

2:26

So given the current uncertainty and elevated volatility, how should investors think about Asia assets today?

2:34

Like what role do Asian equity and Asia fixed income play in a diversified global portfolio in this environment?

2:41

So Fiona, why don't I turn to you first?

2:44

Thanks for the question, Shuxing

2:45

I don't think one of the key challenges investors face today is sentiment versus fundamentals.

2:52

If you look at Asia equities, they have been held back recently by quite negative investor positioning as well as energy security uncertainty.

3:01

Reality is that Asian corporate fundamentals in many areas are actually stabilizing or improving.

3:08

From a portfolio perspective, Asia equities still offer ample diversification benefits.

3:14

Valuations are meaningfully below long-term averages and at a substantial discount to develop market.

3:20

Importantly, this is not just a valuation story.

3:23

We're seeing selective earnings resilience, strong balance sheet and increasing shareholder friendly capital allocation.

3:30

First look at valuation.

3:32

Asia is still the best value on the street versus especially the US market.

3:37

Asia trades at a deep, almost historical discount.

3:40

Resonating with what Norbert said earlier, you're really getting work class growth in Asia but paying a much fairer price to it.

3:48

And for bottom-up stock pickers like myself, this is stock pickers paradise.

3:51

Asia is so diverse that a broad macro call will not work.

3:55

Bottom up do matter in this market.

3:57

There are a lot more nuances between say, Thai hospital chain versus Chinese beer brewery than Google versus Meta.

(Note : Securities mentioned are for illustrative purpose only. This must not be seen as investment advice. ).

4:05

The returns aren't coming from just AI by super cycle, but more sector and company specific drivers

4:12

and for investors heavily concentrated on US assets. I do think Asia provides real diversification, not just a different ticker.

4:20

Adding on to what Fiona said, I think from a global investor perspective, we do see very strong diversification benefits to allocate to Asia fixed income asset class.

4:28

If you look at the correlation to other global fixed income asset classes, Asia credit is running about 0.3 X correlation over the last two years to global AG and US treasury. (Source: Bloomberg, as of 27 March 2026)

4:38

And from a historical volatility perspective, we do see low volatility as well in Asia credit compared to other fixed income asset classes.

4:45

As a fixed income investor used to battle, we look at the asset class now at about 6% in yield.

4:50

And as an investor, you can augment that with triple B and double B paper to enhance your risk adjusted returns and yield.

4:56

And from a fundamental perspective, the growth story of Asia is really important.

5:00

We do see credit ratings on an improvement trend and average rating, for instance, in the JP Morgan Asia Credit Index currently sits at A minus (Source: J.P. Morgan, as of 27 March 2026) And looking at the high yield category of Asia fixed income outside of the real estate sector, high yield default rates have been close to zero. (Source: Bloomberg, as of 27 March 2026)

5:15

So you have a very attractive asset class where you could generate yield with very low correlation to global fixed income assets and also enhancing it from a diversification perspective as well.

5:25

Definitely a lot of exciting opportunities if you really take a more granular view right on both Asia equities and Asia fixed income assets.

5:34

So now against this backdrop, are there specific areas or themes you are particularly focused on within your asset classes?

5:42

Like where do you see opportunities that are perhaps not well appreciated by the broader market?

5:48

Again, as bottom-up stock pickers, we don't just buy the index.

5:52

There are thousands of companies across incredible diverse economies in Asia.

5:57

Look at the tech giants in Korea and Taiwan to digitalization leaders in Southeast Asia.

6:03

We can really treasure hunt for gems as a bottom-up stock pickers, the undervalue stocks with massive potential and they are anywhere if you know where to look in Asia.

6:14

So I'm just picking a few examples here.

6:17

The first one is the regional consumer stocks.

6:20

We're seeing a red disconnect.

6:21

The Asian consumer is actually spending for the markets are pricing them like they've stopped.

6:26

And then the next one is the Chinese Internet sector.

6:29

We have giants, the Internet giants trading at a single digit or low double digit PE ratios while sitting on massive piles of net cash.

6:37

In some cases, they are buying back shares at record rates, which provides a massive floor for investors as downside protection.

6:46

Last but not least, I'm particularly excited sitting here in Singapore of the Southeast Asia as a region, it is just undervalued.

6:54

It is in effect Southeast Asia is the quiet winner of the global supply chain shift away from China dominance to China plus N sort of model, wealth is being created in places like Indonesia as well as Thailand.

7:09

But despite the structural tailwind, MSCI ASEAN index is trading at a historical low at a price to book ratio of roughly only 1.3 to 1.4 times. (Source: MSCI, as of 27 Feb 2026)

7:21

I just echoing what Fiona had said. And we do invest in companies and sectors very similar to what Fiona had articulated from a fixed income perspective.

7:29

We do believe that staying invested is really important when you look at attractive levels of all in yields.

7:34

And building on to what I, I had explained earlier, the focus is really on risk adjusted returns and how divergent across sectors and countries are actually helpful for us as active stock picker because they generate alpha.

7:45

And this is the bottom-up credit selection process that we run in our team.

7:48

And on Asian companies and Asian borrowers in general, what we do see is that they have very diversified funding sources where they're able to tap credit from banks, private credit, public markets and have very strong access to local currencies.

8:01

So this means that we are investing in companies that have very healthy access to the market and access to financing.

8:07

And looking at that, we see very good opportunities in the double B and single B paper.

8:11

In double B space, we are looking at yields of 6 to 7% and in single B we are looking at 8 to 10% yield with very low default risk. (Source: Bloomberg, as of 27 March 2026. For illustrative purpose only.)
And also the ability to invest in some of the names that actually do benefit from higher oil price and higher gas prices.

8:25

And from a global investor perspective, we still see trends where Asia fixed income is under owned by global investors.

8:31

If I look at the high-quality space, Asia triple B's have actually underperformed developed market triple B's in 2026. (Source: Bloomberg , as of 27th March 2026).

8:38

So there's an argument that could be made for global investors to allocate more to high quality Asia fixed income assets.

8:44

And we think that Australia fixed income that's something that we see good opportunities.

8:48

We see opportunities where investors could get 6% yield by investing in single A rated corporate paper and the hedge pickup for US solar investors is positive.

8:56

So to summarize what the points say, I think staying invested is super important and we do see attractive all in yields where you can build a very robust portfolios using different building blocks from Australia, fixed income in the single A space Asia, triple B's for high quality paper and select double B and single B paper that could help to boost the yield of the overall portfolio.

9:15

So we're very excited about the various opportunities and I think we've always pivot to focus on fundamentals and dispersion helps to drive Alpha.

9:23

Definitely we were seeing a lot of opportunities giving the, you know, secular trends coupled with the AI revolution, right in a region with more than about like 60% of the world's total population.

9:33

I mean that representing an opportunity set just not to be missed, especially from a strategic point of view.

9:39

So we hope this episode helps you navigate the opportunities in Asian assets amid this year's market volatility.

9:47

And thank you for joining us on this third episode of the Investment Insights, institutional Conversations.

9:53

If you enjoyed today's discussion, don't forget to check out our next episode on our website.

0:06

Hi, everyone.

0:06
Welcome to Episode 2 of our Institutional Conversations podcast.

0:10
I'm Chris Crea, our ETF strategist for Asia Pacific.

0:14
And today I'm joined by my colleague Derek Fin, who runs our private credit business Strategy and Development for Asia Pacific.

0:21
Hey, Derek.

0:22
Hey, Chris.

0:22
Good to be here.

0:25
Why don't we start off with the headlines?

0:26
We've been seeing quite a bit of negativity and emotional language, like cockroaches, for example.

0:33
Why is private credit being in the news lately?

0:36
Yeah, you really nailed it.

0:38
Unfortunately, private credit has been making all the headlines for all the wrong reasons over the past six months or so.

0:48
I really want to take a step back by defining private credit because I think it's very easy to get lost into defining private credit as this one massive asset class, right?

1:00
And as we know, there are a lot of different forms of private credit.

1:04
You have the less liquid side through corporate direct lending, which tends to be more non investment grade credit where you could get those higher yields potentially.

1:14
But on the other side of the spectrum, you have investment grade, high quality, publicly rated AAA access to what we like to think of as the liquid side of private credit.

1:27
So something like AAA CLOs.

1:30
So if you look at CLOs and investment grade CLOs, all those headlines around cockroaches and private credit, credit risk, liquidity concerns, valuation concerns, those don't apply to the investment grade part of the market.

1:46
So despite all the fear mongering and the headlines, we've still continue to see a lot of demand, particularly on the higher quality part of the private credit market.

1:57
That's a really good point, Derek.

1:59
Private credit isn't just one asset class.

2:01
You don't just have direct lending to your point, you have investment grade options out there and you have daily liquidity options as well, not just exposures with quarterly liquidity.

2:13
For example.

2:14
You mentioned these headlines are driving conversations in this asset class particular CLO AAA notes.

2:22
What else is driving this conversation for you?

2:25
Yeah, I think what's been interesting is you've seen the development of historically asset classes that were only available to institutional clients that have now created these through market innovation accessed by wealth clients as well.

2:43
And some of the concern there is, you know, these are asset classes that have historically only been assessable to institutional investors.

2:51
So why would a sophisticated institutional client that can either directly buy, I'm going to stick to CLOs, a AAA CLO tranche or CUSIP with their own portfolio management team, why would they decide to use, call it a more retail friendly product like an ETF?

3:10
And I think one of the main reasons there, if you think about the historical evolution of access to retail products, they've had to be in certain ways a diluted form of an institutional product, right?

3:24
Either because of regulation needs from the wealth or private bank channels or just that the higher fee component to manage a retail product. Today you're, you have institutional grade products with institutional fees.

3:41
So it makes more and more sense for institutional investors to maybe spend more of their time and resources and perhaps that the more manager selection due diligence specific investments and consider a call it ETF wrapper for some of the higher quality aspects of their portfolio.

4:00
What are some of the challenges you encounter when discussing CLO AAA notes as an asset class with investors?

4:09
Yeah, it's really interesting.

4:10
Unfortunately, CLOs, we share the same acronym as, as CDOs.

4:15
Of course, we, we know CLOs stands for collateralized loan obligations, CDOs are debt obligations.

4:23
They're synonyms, but they're very different.

4:25
CLOs, specifically AAA and AA CLOs, have actually never had a default historically, even during the financial crisis. (Source: Moody’s, Morgan Stanley Research, Data from 1993-2023. Past performance does not predict future returns.)

4:36
You compare that of course, to CDOs, which led to the financial crisis through subprime lending, you're looking at, you know, meaningful credit losses in AAA investments.

4:48
That's just had never been the case for AAA CLOs. Unfortunately, even with institutional, very sophisticated institutional clients. I've been in meetings where I'll mention CLOs and the client will practically walk out of the meeting because their CIO or their Investment Consultant bundle that up with CDOs.

5:10
So I think that education component is still has come a long way, but there's still some ways to go into getting clients comfortable with an asset class that sounds more complex than it actually is.

5:20
Right, so there's definitely some perceived complexity around this particular asset class.

5:25
However, it's clearly very institutional in quality given some of the, you know, the stats that you just walked through.

5:33
And despite all of this, we are still seeing significant adoption of CLO AAA notes by institutional investors for a range of different applications.

5:43
So what are some of the applications you're seeing investors use CLO AAA notes for?

5:50
Yeah, it's, it's really a wide gambit.

5:53
You think about newer institutional investors into private credit kind of looking for just the next step beyond fixed income, investment grade, fixed income AAA CLOs is a great fit for that.

6:05
You're adding more spread, more yield, you're diversifying away from some of that duration risk.

6:12
And you're actually also getting access to an alternative credit access class that has lower correlation to traditional assets.

6:23
The other aspect is clients that have already invested in AAA CLOs.

6:27
They might have a dedicated team that invest in the entire CLOs stack from AAA down to double B and even CLO equity.

6:36
And rather than spend their team's resources and in picking those AAA tranches, they're happy to outsource this given how efficient accesses today in an ETF wrapper, how low cost it is and then everything in between.

6:51
I think the most common use case has been somewhat of a cash plus just given how high quality this space is.

6:58
Again, never had a default historically even during the financial crisis.

7:04
I love your point around access and the ETF vehicle has changed this pretty meaningfully for the better.

7:11
I mean to your point, CLO AAA notes, probably syndicated bank loans.

7:15
These are asset classes that have historically been very difficult for investors to access unless you were a very large influential investor like a large pension fund or insurer.

7:26
But the ETF has democratized access to this institutional quality asset class and like you said, allowed investors to move away from the traditional allocation to U.S.

7:39
Treasuries, U.S.

7:39
dollar, investment grade credit, high yield, and really diversify the fixed income sleeves, improve their yield outcomes, improved quality profile of their fixed income portfolio, and incorporate some diversification across the capital stack.

7:56
So really exciting.

7:58
Some great conversations happening out there.

7:59
Derek, it sounds like. Well, everyone with that, this has been Episode 2 of our Institutional Conversations podcast.

8:06
Derek, thank you very much and we'll see you all next time.

8:09
Thanks, Chris.

0:09

Welcome to our inaugural podcast, Investments Insights Institutional Conversation.

0:14
I'm Brian Levitt.

0:15
I'm the chief global market strategist and head of Strategy and Insights at Invesco.

0:20
Today, I am thrilled to be joined by Chris Hamilton.

0:22
Chris is the Head of Investment Solutions Asia Pacific ex Japan.

0:28
Chris, welcome to the inaugural podcast.

0:31
Brian, thank you for having me.

0:32
It's amazing to be here and I really look forward to having this conversation with you today.

0:36
Yeah, so this is a new series.

0:38
We're going to be releasing these episodes each month.

0:40
It's available to listen to an AP institutional website, and we're going to be talking about a whole variety of things.

0:47
So Chris, I wanted to jump right in.

0:50
We've moved into this new year.

0:52
We produced an outlook talking about a resilient economy, perhaps the need to rebalance.

0:57
In fact, the title was resilience and rebalancing.

1:00
And so, so looking at a world where growth could pick up modestly, central banks are relatively supportive.

1:08
Anything not to like about that?

1:10
Yeah.

1:10
So I mean, I think in general our kind of mindset and what we see from clients is an environment where clients want to take risks, they just want to do thoughtfully and intelligently.

1:20
And I think really the phrase resilience and rebalancing kind of encapsulates and captures what Asian investors are trying to do in 2026.

1:27
You have very concentrated equity markets at the high end, but clients know they need to be exposed to participate in that growth opportunity.

1:36
So I think clients want to take risks.

1:38
They just want to be kind of guided and advised on how to effectively do that, how to globally diversify.

1:43
So it's very much a thoughtful nuance conversation around diversification, asset allocation, waiting, appropriate geographies and sectors versus just kind of a more of a binary kind of risk on risk off.

1:55
And one of the nice things is last year we did get to have what I would categorize as something of an everything bull market.

2:02
It was hard to find a part of the market that didn't do well.

2:04
And you know, when investors think about concentration or valuation, you hope that there's opportunity to do well in other parts of the market besides mega cap tech.

2:16
And from the perspective of a pickup in economic activity and easier policy, perhaps that does continue to build this opportunity where other parts of the market do well, whether it's non-us or whether it's smaller capitalization or value oriented portfolios.

2:34
Yeah, it makes complete sense.

2:36
And I think from our perspective, we see over here in Asia when we're kind of engaging clients, that notion of geographic diversification does really come into play.

2:45
And there's really been a shift in change, particularly in the sentiment coming out of China since the end of 2024, which has been pretty meaningful.

2:53
So investors have really they started to look at opportunities kind of in that space that really picked up in 2025.

2:59
I think the notion whole story around kind of de dollarization comes into play in a lot of my conversations.

3:07
Geopolitics comes into play.

3:08
And I think all that points to kind of a more diversified portfolio at least like from an equity perspective.

3:14
And then also kind of looking outside of public markets, thinking of what are ways investors can harvest return premium outside of traditional public markets, so leaning into private markets And Asian investors are typically, they're on a bit of a different journey in that space.

3:27
And US investors are.

3:28
So they don't have this kind of built out diversified exposures there.

3:32
So a lot of opportunities to have conversations across both public and private.

3:36
But like you said, I think the environment in general is very good for taking risks, just kind of doing so intelligently and thoughtfully, being cognizant of some of these more macro risks that are embedded in the environment right now.

3:47
It sounds like your clients in Asia and our clients in North America are concerned about similar things, whether it's geopolitical risk or implications for the dollar.

3:57
I try to push back a little bit, or at least with regards to geopolitical risk, help them put a lot of what's going on in the world into some perspective.

4:05
I always remind them with any geopolitical event, does it change the trajectory of the economies of the major players of the world or does it change what the central banks are going to do?

4:17
And for the most part, at least up until now, the answers to those questions have generally been including Venezuela.

4:25
Yeah, I completely agree with that really quickly.

4:27
So I mean, having similar conversations, I do think the notion of geopolitical risk, at least in Asia does, I think it overplayed from a narrative perspective and kind of having those conversations, OK, what are the kind of the ultimate implementations of ultimate implications of this and kind of what you see is the market absorbing some of this narrative like very, very well.

4:48
Well, you know, we'll hear the narrative.

4:49
Well, geopolitical risks is at all-time high.

4:51
It's like, well, yes, so are global equities too.

4:53
I completely agree with these things.

4:55
I wanted to just kind of interject there and mention that.

4:57
Yeah, I agree.

4:57
And the de-dollarization concept, I choose to generally frame it as less of de dollarization, but perhaps the first opportunity to diversify away from the dollar in a very long time.

5:09
And the thing about the whole strong dollar environment, I would argue that part of that exceptionalism of the US was very powerful responses to 2020, but then also great bellwether tech businesses.

5:22
And what you're seeing now is policy support in most places of the world, right, a gradual Fed easing cycle.

5:30
And what you're also seeing is a lot of great tech businesses not only in the United States, but also in China and other parts of the non-us markets.

5:38
Absolutely, Yeah.

5:39
So I think the de-dollarization piece comes up here.

5:42
It's kind of two-fold, right, where you have a lot of investors who are kind of base or structured around non USD liabilities and they have long USD exposure.

5:52
So they see that asset liability mismatch and I think it creates some consternation there.

5:56
And that's where a lot of the conversation around like de-dollarization comes up.

6:00
Obviously, the China conversation drives that considerably.

6:03
But even that's another area too where I think you have to put the conversation and contact and it's like, well, it doesn't mean that the dollar is going to go from kind of 80-85% of trade volume to 50%, right?

6:15
Even if it does decline, it's going to be a pretty marginal number.

6:19
But like you said, it makes and creates a pretty good opportunity for investors to diversify some of that exposure.

6:25
So if you're an investor in Singapore or Thailand or Malaysia integrating whether it's European based exposure or another kind of currency in the air portfolio actually looks attractive from a risk adjusted return perspective.

6:39
I would argue it's healthier, right?

6:41
It's a broader environment when you think of any risks that may exist out there.

6:46
So anything that you're talking to clients about in terms of things that they may want to hedge or any challenges that they may want to approach within their portfolios.

6:55
Yeah, it's a great question.

6:56
So I think right now, you know, the investors we talked with are really trying to effectively balance that notion of market participation and adequate protection in a portfolio.

7:07
Obviously, diversification, whether it be from a geographic perspective or from a sector perspective is a great way to think about that.

7:15
But I mean the notion of diversification stretches beyond that.

7:17
It goes into private markets, it goes into kind of other asset classes, other alternative asset classes.

7:23
It also goes into thinking about whether it be more defensive or kind of hedging-based solutions in a portfolio.

7:30
So strategies that maybe have kind of a natural defensiveness embedded in and think about options income type strategies or strategies that automatically or effectively mitigate volatility when risk is high.

7:42
So some of those more unique solutions I think are coming into play right now, particularly with large institutional asset owners who've made pretty significant gains over the last, let's call it six or seven years who want to inject some levers of protections.

7:56
Like some of the more complex solutions are really kind of coming into the fold right now and you see some of the bigger asset owners start to implement those.

8:04
And you'll also see that momentum kind of go downstream with some of the smaller to mid size investors.

8:08
It's interesting how you and I are sitting very far apart from one another in terms of where we are in the world.

8:14
And yet the views, the conversations, a lot of things that are on investors’ minds right now seem incredibly similar, which probably shouldn't be a surprise.

8:22
So Chris, I really enjoyed this conversation.

8:25
Thank you so much for engaging with me in it.

8:28
You know, we hope this episode can encourage you to think differently about the asset allocation opportunities as well as some of the challenges we have in 2026.

8:37
Thank you all very much for joining us on this first episode of the Investment Insights institutional Conversation.

8:44
Chris, thank you for joining.

8:46
If you enjoyed today's discussion, don't forget to check out our next episode, the website.

8:52
Stay tuned.