Hong Kong-based Chow Tai Fook Enterprises (CTFE) is increasing its risk appetite in real estate and private equity as it bets on a spike in inflation and the reopening of China in 2023.
With property investment one of its core strategies, CTFE, the Hong Kong investment arm of the Cheng family, is particularly bullish on the global hotel sector, according to chief executive Kenneth Lau.
He said there has been a V-shaped rebound in hospitality real estate since Covid-19 restrictions were lifted in most parts of the world in the last 12 months.
“The uptick we’ve seen, this so-called revenge travel trend, is really remarkable,” Lau said at the Asia Private Equity Forum 2023 in Hong Kong on Jan. 13, referring to the phenomenon of people traveling to make up for loss. time during the pandemic.
Kenneth Lau,
Chow Tai Fook Enterprises
CTFE’s portfolio has significant exposure to global hospitality. They were seeing room rates and occupancy rates 40-50% higher than in 2019, Lau noted.
“This revenge ride is going to stay. Some may be concerned about the pending recession, but in my conversation with all operators in the sector, they all remain extremely optimistic.”
Lau said he believed there would be a shift from business to leisure travel in 2023, noting that the style of remote collaboration that people had grown accustomed to during the pandemic could stick around for longer, ultimately it would depress business travel longer.
He said his team was currently putting a lot of resources into keeping tabs on the latest travel trends. What was emerging was a trend where people were staying longer and concentrating on local experiences rather than engaging in quick tours of the city.
“We think that despite a recession, which will hurt people’s spending, people will still want to travel,” Lau said.
With the border between mainland China and Hong Kong reopening on Jan. 8, Lau believes the city’s commercial real estate will rebound. He added that Hong Kong’s latest talent incentive scheme would have a “big impact” on Hong Kong’s economic growth and further stimulate the retail sector.
In late 2022, the Hong Kong government implemented a series of favorable talent schemes that grant visas to eligible overseas and mainland Chinese professionals to reside in Hong Kong for up to two years without employer sponsorship.
PROPERTY RECOVERY IN CHINA
Turning to mainland China, Lau said he believed the high-yield bond market had been “dismantled” following China’s crackdown on the property sector.
“The growth of the entire industry in China, particularly on the residential side, will slow down. But that’s helpful because obviously demand is a bit down right now,” he said.
However, the family office is “cautiously optimistic” that there will be a future recovery after the government launched rescue plans by allowing bank lending, bond issuance and equity financing.
As China’s economic activities normalize, residents’ demand for home purchases will gradually recover as there are still limited investment options in the country, Lau noted.
JPMorgan Chase & Co estimates that over the past three years, excess savings among Chinese residents reached 5.6 trillion yuan ($835.5 billion).
PRIVATE EQUITY EXPOSURE
In terms of overall asset allocation, Lau said the company was cautiously increasing exposure to private equity in the near term.
Private equity remains only a small part of the family office portfolio. Even if there are outstanding capital commitments that could squeeze liquidity, in a good year, a good harvest should bring good returns, he said.
On public markets, Lau thought Chinese stocks would stand out in 2023.
His tactical stance is likely to focus on pent-up demand in the consumer sector triggered by China’s reopening, coupled with supportive government policies, including those in the real estate sector.
Longer term, the family office is poised to make strategic allocations in Chinese stocks around topics including raw materials and food and energy security.
The decoupling of global supply chains and the push for carbon neutrality would create “huge demand” for basic products, to make electric vehicles, for example, he said.
Food, water and energy security arising from supply chain disruptions was something the family office would consider long-term, he added.
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