‘Mindful’ of AI exposure: wealth managers at Hong Kong summit urge balance in portfolios

Executives from a private wealth conference in Hong Kong have presented AI infrastructure as a promising "defence plus growth" investment opportunity, while advising investors not to overindulge in AI-centric portfolios. Sabina Chiang, the head of Hong Kong managed investments and wealth solutions at Standard Chartered Bank, pointed out during a panel discussion at the Private Wealth Management Association's annual summit that AI's infrastructure requirements are a key bottleneck for structural growth.

She explained that AI may be digital, but its limitations are primarily physical, and this has opened up investment avenues in data centers, telecoms towers, fibre networks, and different power sources. Chiang emphasized that "Infrastructure 2.0" represents a shift from purely defensive investments to those that offer both defensive qualities and growth potential.

Earlier this week, during the Global Financial Leaders' Investment Summit organized by the Hong Kong Monetary Authority, senior financiers discussed the investment opportunities and risks linked to the unprecedented demand for AI infrastructure. At this summit, Pimco CEO Emmanuel Roman warned that the demand for infrastructure, potentially reaching US$10 trillion over the next five years, could eventually become excessive and trigger a downturn.

However, Chiang reiterated that the evaluation criteria for infrastructure investments remain unchanged. "We still seek assets that are essential, hard to replicate, and provide predictable cash flows with inflation adjustments," she stated.

The convergence of AI's growth potential and conventional investment metrics – which include income generation, portfolio resilience, and inflation protection – has led to an increase in private wealth investors allocating funds to such assets. Chiang highlighted that a diversified approach, balancing AI exposure with less correlated investments, is crucial for investors.

Markus Egloff, head of global wealth solutions at investment firm KKR, echoed this sentiment, cautioning investors to be "mindful" of their AI exposure. According to Egloff, the S&P 500 has approximately 40% correlation to AI based on earnings and revenue sensitivity of the included companies. He advised investors who track the S&P 500 to consider diversifying their portfolios into private equity, infrastructure, or private credit to reduce correlation.