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Perspectives on Shifting Investing Strategies in the New Digital World

By Corinne Lee | March 16, 2022

As the world continues to become more and more digital, firms must take a holistic view of the trends that have the potential to transform business and operating models. DTCC’s Hasan Rauf, Executive Director, Head of Business Development - APAC, recently held a one-on-one discussion with Nomura Asset Management Malaysia’s Rejina Rahim, External Advisor, to gather her perspectives on navigating the new post-pandemic digital world.

Related: DTCC's Hasan Rauf Discusses UMR Phase 6

HR: As we move into a post-pandemic era, are there any changes in investment mindset and the allocation of funds for institutional investing?

RR: From my observation, the pandemic has managed to bring forth a better understanding of sustainable investing and a more integrated emphasis on Environmental, Social and Governance (ESG) investing, as opposed to before when governance was the main focal point, while environmental and social elements lagged behind. While market diversification to diffuse risk is an attractive risk reduction strategy to improve earnings, the threat of climate change and the disruption it brings to business plans cannot be ignored.

HR: Aside from being ESG-focused, has there been a shift from global and regional to more local, domestic investment trading due to extreme market volatility in the last two years?

RR: Looking through the lens of the investment climate in Malaysia, there is greater awareness of diversification. In the last few years we have seen more investors turning their investment sights toward developed markets largely due to poor returns from local and regional equity markets. With that being said, market volatility is no longer viewed as a bad thing as long as the risk can be contained or managed competently. In general, investors are embracing volatility since it's likely to continue in the future.

HR: Do you see the pandemic creating further wealth divides across Asia Pacific markets? How has the widening gap impacted global firms operating in local markets?

RR: One of the key concerns of the pandemic is the rising gap in earnings and the resulting domino effect on savings and retirement plans. According to the October 2021 data from the Malaysian Employees Provident Fund, a federal statutory body that manages the compulsory savings plan and retirement plan for private sector workers in Malaysia, savings dropped by approximately 38% among the bottom 40% of the country’s population.

The pandemic has also hurt low-income community in industries such as the supply chain that depend on cheap foreign labor – essentially migrant workers who remain marginalized even during the best of times. Despite a tight foreign labor market, the migrant community continues to receive low wages owing to high recruitment costs. While going digital will help firms offset rising costs, the huge initial expense to upgrade (or the reliance on legacy systems), may prevent firms from capitalizing on the benefits of new technologies.

By leveraging automation and the latest technological advancements, global firms operating in local markets can enjoy more growth as they gain efficiencies in managing cost and potentially edge out firms that still rely on manual processes. Investing in technology can also help level the playing field and serve as a catalyst to bring down costs while improving business and operational efficiencies.

HR: What are the key operational areas that matter most to firms as they navigate trends that are shaping the future of business?

RR: While artificial intelligence (AI) and machine learning (ML) promise to optimize operations, increase organizational performance, reduce operational costs, and more, the speed of adoption may vary across market segments.

A report that I came across highlighted that the buy-side is trailing behind the sell-side in embracing and implementing these leading-edge technologies. According to the report, a survey of 120 asset managers revealed that 28% had already deployed AI and ML in several core business areas while 44% of 281 sell-side firms surveyed indicated that they had deployed AL and ML in multiple areas.

In light of surging compliance costs due to increasing regulatory requirements, there are many areas that can be automated further in the Asia Pacific region such as Know Your Customer, Anti-Money Laundering and basic report writing.

HR: What is your outlook of the regional financial services industry in the next five years?

RR: Looking ahead, digital is the way to go and the demand for semi-conductors and related minerals to help spur individual countries’ economies will remain. Given how sensitive markets in Asia Pacific are to global economic conditions, rising inflation is a cause for major concern. Central banks in the region will have to exercise close vigilance and respond with appropriate monetary and fiscal tools to minimize economic impact and economic inequality especially in developing markets.

As many regional markets, including Malaysia, are highly dependent on small and medium-sized enterprises to contribute to economic growth, the rise of digital banking and other micro solutions will help alleviate some of the issues associated with micro-segmentation.

The popularity of holistic investing has also resulted in more interests in ESG and sustainable investments. The effects of climate change will be felt even more in the coming years. I agree with the observation that the transition risk of going net-zero will be more challenging and costlier for developing markets compared with developed markets. I also envision the glass ceiling is slowly breaking around us with the ascent of more women representation in boardrooms than ever before.

Central to all of these developments is the role technology plays in helping to improve data gathering to make informed decisions, increase transparency and improve efficiency.

Note: The views, thoughts and opinions expressed are the interviewee’s own and not Nomura Asset Management Malaysia Sdn Bhd.

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