Exploring the evolving Asian consumer and investor base with Dymon Asia

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Sian Goh: I would say there are two big demographic shifts that we see. The first is that when it comes to the Gen Z retail, they are starting to become much more active. The other thing is there are also other parts of Asia that are obviously getting older. And as a result of that, what we're seeing is increasing savings rates. And that's almost changing the rhythm of the way equities are behaving, and also what type of equities are being chosen. There's a very, very big significant shift in terms of retail participation. This is not just an Asian phenomenon. It's a global phenomenon.

Eloise Goulder: Hi, and welcome to J.P. Morgan's Making Sense. I'm Eloise Goulder, and today I'm delighted to be joined by Sian Goh who is partner and head of Research and Strategy at Dymon Asia. So Sian, thank you so much for joining us here today.

Sian Goh: Thank you for having me.

Eloise Goulder: So, could you start by introducing yourself, your background, and your role at Dymon Asia?

Sian Goh: Sure. I'm a partner at a $5-billion multi-strategy hedge fund that's focused on Asia. I run the research and strategy department. My team basically works closely with all the portfolio managers, our PMs, across all asset classes to find trades. In terms of sort of asset classes, we bucket them into three buckets, effectively. The first one is macro, where we look at currencies, rates, equity indices, sectors, and commodities. And then we also have the second one, which is traditional long-short equity. And then the third one is relative value, and that can encompass all asset classes from index arbitrage to fixed income relative value. All of these are traded in the Asian markets.

Eloise Goulder: Great. And I know that your organization has grown enormously. Sian, what does it mean to be an Asian-focused multi-strat and where do you think your edge really lies?

Sian Goh: Yeah, that's a great question. I'd say that most multi-strategy funds tend to be focused in developed markets. We, on the other hand, focus a little bit more on Asia. Now, the reason why we focus on Asia and EM specifically is that Asia is very, very diverse. We look across almost 12 countries now, and these can range from India, China, Korea, Japan, and also all the ASEAN countries as well. And they're all different in many ways economically. For instance, they export different products. Some do semiconductor chips, some do basic minerals and mining. And they're all geopolitically different as well. They're aligned in different ways. So, obviously, Japan and Korea are much more aligned to the United States, while Malaysia, on the other hand, a little bit more skewed towards China at times. So, what we find is that you have so many different and diverse countries, and they all have their different monetary policies and fiscal policies. And so, it has this sort of natural dispersion that we see across all markets, and that's what we love to trade. And that's why we think that basically a multi-strategy product in Asia is a very good way to create alpha. And when we do Asia specifically, it's also a very localized market. To give you a sense, we also have PMs that barely speak English. They know the local market so well and given the setup and sort of diverse nature of the underlying countries and assets that are quite distinct, we really don't have the need for silo pods. We actually do it the opposite way. And this is very much about trying to find ways to centralize the system. So, that's why my group sits above these three buckets, and we centralize our research and strategy to do this. Now, one, it helps with court vision. So, even though you're very engendered in your local market, what we try and do is say, there could be events that actually impact you that you should at least be aware about. So, an example would be the U.S. election or Russia-Ukraine war. Second, we see the supply chains of the world. There's so much connective tissue to the developed markets from the Asia. What do I mean by that? We produce nearly everything from semiconductor chips to apparels to autos. And so, as a result of that, we really have to understand all these different supply chains around. Because we're always in the trenches and we see a lot of these supply chains, it also means that we can understand when there are shortages or bottlenecks, as there are now in, say, with chips and memory.

Eloise Goulder: Absolutely makes sense. And it's also interesting, given that we're going through this AI revolution and so much of the supply chain is based in Asia, I can understand the importance of needing to marry that supply side in Asia with the demand side.

Sian Goh: That's right. And it just gives you a better macro picture across the board globally. What we would say is that there's a lot of micro work that actually has to build up into effectively the macro picture today. And more and more we see that. And that's why we leverage a lot of our long short equity teams, who obviously are in the trenches when it comes to things like companies, in terms of initial feedback. And I said, that translation really starts to help with our macro portfolio managers or even sometimes even with the fixed income relative value guys, because it really helps you recycle some of those themes that are popping up at the micro level are starting to actually go into the macrospace, especially for AI.

Eloise Goulder: And sitting in Asia and having this very localized Asian knowledge, do you think that many facets of the cycle, whether that's the economic cycle or perhaps the technological cycle, are underappreciated from investors sitting in the Western world?

Sian Goh: Yeah, I think sometimes that is the case. So one of the things, for instance, that happened last year during Liberation Day was that there was an absolute panic around what tariffs could do. What was amazing, and one of the things that I was really positively surprised about, sitting in Asia, is that when you start talking to companies, and that goes from Nike, Adidas to the supply chain, was how resilient they were. It's almost like they'd seen the play before, they understood what they had to do. But what was also fascinating was there was a lot of restructuring that was going on in many retailers. Consumption patterns have been changing already. And because they were doing that restructuring, they never wanted to take a lot of inventory on. So because they didn't take a lot of inventory on, they actually survived the whole of that Liberation Day process relatively well. They were relatively unscathed. And this time around, there were no bankruptcies with any sort of major brand names, as an example. What we would tell you is that, they've also learned how to actually deal with tariffs in a much more impressive way. So when you're looking at things like data, you can't tell that. You have to sort of wrap that story around. And that's only comes through the process of discovery, through actually having these discussions with many companies, both in Asia, as well as in the United States or in Europe.

Eloise Goulder: You're obviously leveraging a lot of data, but on the other hand, the data isn't always perfect. How do you manage that process within your organization?

Sian Goh: If you think about what we do in Asia, we do so many things in the exporting side. So all those supply chains have significant amounts of data, but it goes beyond that. It's the fact that you have to think about the amount of dollars that are accumulated by exporters. You then have to say, well, what happens once they get those dollars? They want to recycle them. And because they have so many trade surpluses, what do they invest in? And they tend to want to recycle that in the United States. So you have to think about portfolio flows. So all of this is essentially almost like a sequencing, and you are tracking all that data. We try and track all of these things and understand that. And that obviously impacts currencies. It impacts flow positioning in many markets in Asia.

Eloise Goulder: And on the subject of flows and positioning, how much do you track those? Because so far, I think everything you've spoken to has been quite fundamental, macro fundamental driven. But how important do you believe positioning flows and technicals are in the investment process?

Sian Goh: Oh, I think they are critical and more so than before. When we think that positioning is very skewed, that is far more important, especially in the short term. And when you're trading such short term position, sometimes it really becomes a big thing. And don't forget that hedge funds are very small in what is effectively the giant investment landscape. We still have to track what's happening with pension funds and sovereign wealth funds in the region, for instance. They are 8.5 trillion in terms of combined assets in Asia. And so, if you don't understand how to analyze those and what they are doing as well, it will hurt if you go against them. And that's very true of places like Korea, Japan.

Eloise Goulder: I know the retail share of volume in Asia is so significant relative to other regions of the world and is growing. How do you see the retail investor as impacting prices ultimately? And how do you weave the retail flows into your stock picking process?

Sian Goh: It's a great question. I would say there are two big demographic shifts that we see. The first we would say is that when it comes to the Gen Z retail, they are starting to become much more active. Part of that is they're obviously consuming a little bit more, but they're also starting to invest a little bit more because when you can't buy a house, because you've been priced out, they are putting the money into the stock market. But the way they do it is completely different to prior generations. They're happy to put their monies into ETFs. They're happy to use robo-investing. They have many different ways. They love meme stocks as an example. The typical response is if the market falls, buy it. And that's what we see. And irrespective of where valuations are, what's happening, they just keep doing it. The other thing is there are also other parts of Asia that are obviously getting older. And as a result of that, what we're seeing is increasing savings rates. Those savings rates can be as high as 30% in some countries. So for instance, Singapore and China, their savings rates are over 40%. Now compare that to the U.S., which is 17%. And in Europe, it's about 26%. So just think of the amount of savings that are getting translated into stocks or into other sort of wealth management products. It's suddenly becoming significant enough to actually impact the market. And for us, that's really what we're starting to analyze a lot of. And basically, that's almost changing the rhythm of the way equities are behaving, and also what type of equities are being chosen. An example is that we're seeing a significant rise in dividend stocks. If stocks actually issue significant dividends or do great buybacks, that tends to be much more favored. So our view is that basically there's a very, very big significant shift in terms of retail participation. This is not just an Asian phenomenon. It's a global phenomenon.

Eloise Goulder: It's fascinating. And your point that it's really changed the rhythm of equity markets. I mean, it absolutely makes sense when you think how sizable the collective cohorts are and how sizable their collective funds are. And this idea that the retail investor is quite heterogeneous, certainly in age range, there's the younger Gen Z type range, which is only going to grow as these people get older and more join the cohort. But there's also the older cohort, presumably doing quite different things online. I mean, we as a team track social media sentiment, really, we see that as a lens on the retail investor, but it's more likely to be a lens on the Gen Z retail investor than the older retail investor.

Sian Goh: Yeah, what I would say is that in terms of demographic tailwinds, it's also Asia is going to actually become the dominant force. 60% of the world's population working age labor force will be in Asia. And for the OECD forecast that by 2030, Asia will represent about 66% of the global middle class population and 59% of the middle class consumption. So you do have to follow Asia trends going forward because this is becoming so much more sizable. The other thing about Asia is that it's significantly underinvested today. And what do I mean by that? It's already 38% of the global GDP, and it's projected by 2030 to be about 41%. But it's only 24% of just global market cap at this moment in time, right? And in terms of indices, it's even worse. It's about 11% of MSCI or country world. So we're already at a point where what is going to be the biggest demographic force is has the smallest index weight at this moment in time. And for me, that's some sort of anomaly that I think over time will have to change anyway.

Eloise Goulder: Mm, and you add to that the tailwinds around AI and AI supply chain where a vast proportion comes from Asia.

Sian Goh: Correct.

Eloise Goulder: And that's another tailwind, isn't it?

Sian Goh: Absolutely right. We've been the beneficiaries of effectively the AI boom because most of that infrastructure build out, whether it's semiconductor chips, server racks, basic sort of electronics have all been basically done out of Asia. And that's why we see a significant boost in Asia growth recently because of effectively the AI boom. And that's impacting from places like Malaysia, Korea, Japan to some extent, and obviously Taiwan.

Eloise Goulder: Mmm. And going back to the retail investor, we track social media sentiment, but I know there's inherently quite a U.S. and probably a Western bias. And one of the most frequent questions we get from investors is can't you use alternative social media platforms that really represent the Asian consumer and the Asian retail investor? What's your take on that? And how are you managing that?

Sian Goh: What we would say is that, whether it's large language models or social media platforms, the Asia component is missing. Actually, most large language models have a very English bias, right? It's been programmed with English in mind. So once you start to change the language, what does that do for effectively your choice selection of models? So that's number one. What I find more fascinating right now is that we're really getting to a point where Asia is actually starting to almost impact Western tastes and biases. So an example that we would give is Korean cosmetics. It's become so significant now. Now, that has actually been driven primarily by TikTok. And what we're seeing right now is that 22% of the market share of the United States cosmetics is now Korean, and it's actually overtaken France. It's incredible.

Eloise Goulder: And when you compare that to 10, 20 years ago when France was presumably a massive proportion...

Sian Goh: Exactly. Exactly. So not just Korean cosmetics, but we're starting to see it happen in consumer products. So for instance, Labubu dolls, has become a global phenomenon. What's really fascinating about it, initially, actually, even in China, it wasn't that popular. It was actually Thai tourists who came in and started buying significant amounts of Labubu dolls. How did it come to, actually, the U.S.? It was Lalisa from Blackpink, who is actually Thai, in a Korean girl group. And then, obviously, after that, it went to Rihanna. And the point I'm making here is that what we're seeing so much influence is coming out of Asia right now. And this whole social change is just happening, And as I said, from an investing community point of view, right? We're still behind when everything else in terms of culturally is starting to move already. And I just find that fascinating.

Eloise Goulder: Totally agree.

Sian Goh: Yeah.

Eloise Goulder: So we've been discussing the AI supply chain, which is obviously so significant in the Asia region, but what about using AI in the investment process? How much are you using it and how much is it changing your processes?

Sian Goh: Oh, I think it's changing it substantially. I'll give you an example for research and strategy, especially on the buy side. I would say maybe 30% to 40% of our job was effectively aggregation, aggregation of sell side of research around. That's essentially been taken away. My team's a little bit lucky because we automated a lot of our processes much earlier already through Python. So as a result of that, we don't feel the need to change that dramatically. But I think what we're starting to see about AI is that it is so powerful. It can be used for synthesizing information so significantly. But it's very much a cog. It's very good for doing initial research. Scraping, cleaning, transcribing, that sort of stuff is excellent. But can it actually make investment trading decisions? Our view is it's not possible yet, and we don't expect that to be anytime soon. The other problem that we see with AI right now is that, there's so much information already, and so much of that is already being packaged up by AI. So we try and find ways to reduce information down. What we worry about more than anything else when you're thinking about AI is, you're only as good as the data. And so curation has become a bigger part of what we do. We're very obsessive about what we put into a database, and then we put an AI wrapper around it. So you have to almost sift out as much as you can. And not all of it's good information and certainly not very good for investing. And so what we end up doing is trying to curate as much of that information as possible that we think is relevant, and then only allowing the AI to wrap around that, rather than what's happening globally or through the internet.

Eloise Goulder: So there's this enormous proliferation in data and textual data.

Sian Goh: Correct.

Eloise Goulder: And I guess your point is so much of that is noise, not signal. And you need to isolate the signal. Do you actually use AI to sift and to weed out the noise?

Sian Goh: Yeah, we do. The one example we would give you is say things like research, where we say, okay, if the AI can read the words in line, or there is no real change in their call, then don’t select those pieces of research. Only select the ones that have changed into an overweight position or an underweight position. That would be a very basic example of how we're starting to change the nature of what we do with AI. Essentially, we use AI to cut the data rather than to add data at this point.

Eloise Goulder: So, coming back full circle to your investment philosophy at Dymon Asia, it's really clear that you have this edge in bridging the gap between these very diverse and dispersed local markets, all of which have their own nuances, their own languages, their own influences, especially for retail and via social media. But you're bridging that with the global investment universe and the global investment tools and the global macro dynamics. And bringing those two worlds together is really where the power and where the edge lies.

Sian Goh: Indeed. What we believe is that basically the multi-strat model works so well in Asia, because as I said, it really is this collaboration between, say, Asian equities, fixed income and macro that really blends itself really well. And it really does marry with what Asia does best, which are things from supply chains and increasingly becoming more influential from both an investing standpoint, but also from even things like media. We think that this is going to be something that just gets even more powerful. As these Asian tailwinds start to increase.

Eloise Goulder: Wonderful. Well, thank you so much, Sian. It's been a really, really fascinating conversation. And Asia, I mean, simply looking at the market cap of the region, Asia's obviously been on a phenomenal run since Q4 of last year. So really wonderful to have a better understanding as to what those drivers are and how you're really capitalizing on those trends.

Sian Goh: Yes. Well, thank you for having me.

Eloise Goulder: And thank you also to our listeners for tuning in to J.P. Morgan's Making Sense. If you do have questions, then please do go to our website at jpmorgan.com/market-data-intelligence. And there you can always reach out via the form. And with that, we'll close. Thank you.

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