Straight Talk presenter Eugene Chan (left) interviews veteran investor Cheah Cheng Hye on TVB on March 26, 2024. (PROVIDED TO CHINA DAILY)

Veteran investor Cheah Cheng Hye is on the show this week. He is a founder of one of Hong Kong's leading asset management companies. He is worried about the structural deficit for Hong Kong. He reckons that Hong Kong needs a new growth engine to stimulate the economy. Cheah Cheng Hye said the underlying issue is that Hong Kong is becoming less and less competitive. He suggests the city integrate more forcefully with the Guangdong-Hong Kong-Macao Greater Bay Area.
 

Check out the full transcript of TVB’s Straight Talk host Dr Eugene Chan’s interview with Cheah Cheng Hye: 

Chan: Good evening! I'm Eugene Chan and joining me on Straight Talk this evening is Dato Seri Cheah Cheng Hye, founder of one of Hong Kong's leading asset management companies. Prior to his career in finance, he was a top journalist with some of Asia's prime financial newspapers. He has received more than 200 professional awards. And of note in 2023, he won Asia Asset Management’s “2023 Best of the Best award-Lifetime Achievement Award”, which recognizes his outstanding contributions to the industry. He has also been named by the Asia Asset Management as one of the top 25 leaders. So, with over five decades of experience spanning journalism and finance Cheah is here to share insights on achieving value for money in investments. Welcome, Dato Seri! 

Cheah: Thank you, Eugene! 

Chan: Dato Seri, you have founded one of Hong Kong's biggest asset management companies with over 18 billion of assets with offices in Shanghai, Beijing, Singapore and London, and this company also became the first asset management firm to be listed on the Hong Kong Stock Exchange. You have quite a remarkable life journey. And I know that you had humble beginnings through to where you are right now. Perhaps you can share with our viewers a bit more about yourself. I mean, your background and how you got there, from where you were. 

Cheah: Thank you, thank you Eugene! My story is actually quite unusual. I was born in Penang in Malaysia. And in fact, I left school with only a form five education. I was only 17 years old at that time. I never imagined that I could come to Hong Kong with my partner. Eventually I founded Value Partners and was even invited to join the board of directors at Hong Kong Exchanges and Clearing, which owns the Hong Kong Stock Exchange. It is an unusual journey. I'm happy to share what I know about what really happened. 

Chan: What would you say was your most memorable experience or anything that you would have done differently?

Cheah: Not really. I think my main story is one based partly on self-motivation from a very young age because my father passed away when I was just nine years old. So, we were struggling in great adversity and hardship in Penang. So, I was used to a life of self-reliance. And I basically had been on a lifetime journey of learning, so much so that when I was a teenager, I taught my own signature for my name, the word learn L-E-A-R-N, which is how I sign my name today. I always remind myself to learn, but also very importantly is that my generation and I'm now 70 years old, one of the world's luckiest generations in human history, especially for finance. Because I came of age during the golden time when interest rates were kept very low for many years. And governments were very prone to intervene whenever markets had a setback. So, we call that we are able to enjoy a put to the government by the central bank, when we always expect to be rescued whenever the market got into trouble. That era unfortunately has now come to an end but I'm one of the key beneficiaries of that golden time. 

Chan: So, Dato Seri Cheah, I want to ask you, basically you have spent your entire working career in Hong Kong. And as you said, you were in the golden era for both the world as well as for Hong Kong. Do you still think Hong Kong is still the land of opportunity right at this stage? 

Cheah: That's a difficult one. I think we're at the best stage of Article 23 National Security Law. Hong Kong is in a better place. We are able to have a higher assurance of security. But there's still a formidable list of problems that we have to overcome in Hong Kong.

Chan: So, Dato before we move into actually the challenges that we have, I want to know more about yourself. I know you're from Penang and you go there very regularly. What do you tell people in Penang or in Malaysia about Hong Kong? Can you still tell a good story about Hong Kong when you're back? 

Cheah: Yes, of course. I think Hong Kong, first of all, is the home of at least 22,000 Malaysians like myself. We are very grateful, very appreciative of the hospitality and the very good environment for business, for the professions that we've found here in Hong Kong. The Hong Kong people have been very open-minded and the sheer efficiency in Hong Kong and let's be practical, Hong Kong salaries are significantly higher than what we can get back in Malaysia. In fact, I worked in Malaysia for several years as a newspaper reporter, so I can directly compare. Hong Kong still has a lot going for it, I would say. 

Chan: You just mentioned that Hong Kong has the highest salary and maybe that's the reason why you came in the first place. Would you still think Hong Kong people are friendly to you as a first-comer? Or are we just as friendly today? 

Cheah: Hong Kong people don't seem to treat us any differently from their own people. So, in fact, the very concept of Hong Kong people I think has been a difficult one to define. There's not very much of a clear Hong Kong identity. So, I find that there are different types of Hong Kong people and we all live in different groups. For myself, I can’t actually read Chinese, so I tend to speak more to the English speaking groups. 

Chan: Right, Cheng Hye. So, let's go to Hong Kong. Before we move into the challenges that you would like to discuss with us, we had financial secretary Paul Chan Mo-po on our show a few weeks ago, talking about the budget, and some of the key highlights I'm sure people are quite familiar with now. So, what are the implications in your opinion for businesses and investors operating in the region, what signal has the financial secretary passed onto the rest of the world? 

Cheah: I worry about what seems to me the increasingly structural deficit in Hong Kong's budget. I think Hong Kong sources of revenues are quite limited and are quite dependent on sales of land and more of those would advocate Hong Kong should move, just like many other jurisdictions, to goods and services tax, in other words, is a consumption tax. Politically, that's very difficult because the Hong Kong government, I would say, it has difficulty in doing things that might be unpopular with the public. I think the solution for that, by the way, I just get to the point is to go back to the system of "one man, one vote" for the Chief Executive. This was precisely the reform that was introduced in Hong Kong in 2014 with the blessing of Beijing, but unfortunately it was defeated by opposition politicians who thought, who were very ambitious. They wanted a western-style democracy, which in my view is not suitable for Hong Kong because you want to create more chaos. 

Chan: Why do you think the one man, one vote ... or rather to choose our own chief executive will be, will give us different answers to Hong Kong? Why do you say that?

Cheah: I think ... because like (Chief Executive) John Lee … he is not elected by the people. It is quite important to have a mandate that comes from a popular representation from the system, I just described a one man, one vote, which by the way, is one of the promises made by the Basic Law. Exactly the article 23. So once you have universal suffrage, you can say that you are elected by the people. It gives you a powerful tool to make tough decisions, controversial decisions that might otherwise be very difficult to push through.

Chan: So otherwise, in other words, what you're trying to... what you're saying is, if the chief executive has the mandate of the people, he'll be more likely, much more easier for him to do some maybe so called "unpopular" policies. 

Cheah: Unpopular, controversial, innovative or out of the box – these are things that typically governments that have enjoyed a mandate from the people find easier to push through. 

Chan: Right, just now you also mentioned the structural deficit. According to Financial Secretary Paul, this year and next year will be deficit. But hopefully in 2027, we're starting to get a balanced budget again. So, would you be optimistic about that? 

Cheah: No, I'm not. I'm not seeing new growth engines emerging in Hong Kong that will supply the tax revenues and other revenues that will help to cover the deficit. On the contrary, I see a lot of structural issues that Hong Kong will find very difficult to escape from on the expenditure side. 

Chan: Since you are really a stock market man. I mean, stock market in Hong Kong hasn't been doing well at all. I mean, what insights do you have for ... would you offer our investors? The television, they will say we've got quite volatile market conditions. And how would you navigate them so that they can identify potential opportunities for value creation? 

Cheah: Right now? I'm very cautious about investing in general. I've been investing now full time since the 1980s. And I think we entered a very troubling period, not just for Hong Kong, but for the world. Increasingly in recent years, stock market prices move in response, not to economic fundamentals, but to geopolitical tensions. That's a very hard one to predict. 

Chan: Right. So, your advice is to be very careful and be conservative. 

Cheah: Careful, conservative and, for me, I believe that although China has been out of fashion for a while, China remains a very promising, high potential place for investing. The Chinese government, in my view, is moving very carefully to create a sustainable society that is not based too much on deficit spending. To me that is a promising idea for a long term investor. 

Chan: Well, let's take a break now. But viewers stay tuned we will be right back for more discussion on investment strategies to maximize your potential for value creation.

Veteran investor Cheah Cheng Hye speaks on TVB’s Straight Talk program on March 26, 2024. (PROVIDED TO CHINA DAILY)

Chan: Welcome back to Straight Talk with Dato Seri Cheng Hye Cheah, founder of one of Hong Kong's leading asset management companies. So, Cheng Hye, in the first half you have said that you were worried about the structural deficit for Hong Kong. And you are worried about Hong Kong because you haven't seen the growth engine. And you said that the stock market doesn't really … not only reply to the … respond to the economic situation, but also to all this geopolitics. Not to mention we have sort of an increased interest rate in the recent last two years, that doesn’t help the investors. So, many people are forecasting a slowdown in major Asian economies, especially China, you also mentioned. So, how would that affect Hong Kong as a city?

Cheah: Hong Kong is a … first of all, let’s talk briefly about the multiple symptoms that all is not well in Hong Kong, including the fact that in recent years, an estimated 200,000 people have emigrated to other countries away from Hong Kong, especially to the United Kingdom. Voter turnout in local elections in Hong Kong has been around 30 percent, a bit low. The recently published World Happiness Index sponsored by the United Nations put the level of public happiness in Hong Kong at number 89, somewhere around the same level as South Africa, well behind the level of happiness, for example, in Russia or the Chinese mainland. So we got a lot of work to do, and I think Hong Kong government in recent years, since 1997, has been a very distracted government. There is an unending series of events that distract the government from focusing on fundamental long-term issues, including their social unrest, the COVID, the long struggle to pass national security legislation etc. We got to get back to work now, we got to turn around the solution before it's too late. 

And as I mentioned in the first part of this conversation, I think one of the keys is that the chief executive should be elected by the people, exactly a promise that was made under the Basic Law. And this is not a western-style election system, this is more a system where the candidates have already been pre-approved by the central government, and then offer to the people. This form of universal suffrage, I think, is a good fit because it means that Beijing can be sure that the chief executive will still be part of the national framework, but the people of Hong Kong will have a choice in who they finally select to lead our SAR. This guy will then have the mandate from the people to undertake fundamental changes, that I think, are critical to our medium to long-term future.

Chan: Right, I think I can see the point you are coming from. But I have to say that the chief executive, John Lee, seems to be receiving quite popular support from the government and the people at the moment, from all the interviewees we have. But let’s put that aside. That is something that we want to work towards, and hopefully one day we can get back to universal suffrage. Do you think, I mean, Hong Kong has always been so-called a pearl or jewel for China, for our mainland, and they have always been trying to support us in the last 26 years. Do you think Beijing is doing enough to support our economy at this stage? And have they given the right signals to the market?

Cheah: I think so. I, for one, am very comforted and satisfied with the level of endorsement and support we have received from the mainland and the government in Beijing. I think in some quarters, Beijing has been seen as being too close to the local Hong Kong elite, the big businesses and the senior civil servants. Beijing might, perhaps, make a bigger effort to connect with the grassroots people in Hong Kong. But that's fine because they have their own issues and problems to resolve. And I believe Beijing really has kept to the idea of letting Hong Kong people run Hong Kong, as much as possible. 

Chan: Since you mentioned that Beijing wants to engage more with the grassroots. But you look at the recent District Council election, they really stressed on having the policy being fully communicated to the people, and the people being able to reflect their opinions. I think I am sure they are doing very similar to what you are suggesting. When you look at the Article 23, that was enacted last week, and the chief executive said that now we are concentrating our efforts to sort of improve the economy and improve livelihood of the people. Do you think we can do that?

Cheah: Well, you can do things but the constraints right now are significant, and to really move the needle, you have to do a lot of out-of-the-box thinking. And then once you come with solutions, you have to have some guy with charisma and grassroots support, who can then sell it to the people, both in Hong Kong and the world. That's a lot of work. I am very familiar with the work done, for example, in other Asian locations. Politics is, A, about out of the possible; and B, is about selling things that may be unpopular right now, but need to get done.

Chan: What would you do if it is even to be proved to be unpopular? What do you suggest to do?

Cheah: Hong Kong’s domestic economy has entered a stage that we call a monopolistic capitalism. And this means that economy is controlled by cartels and oligopolies, real estate, even supermarkets, utilities, transport services. We need to make a much bigger effort to break up those cartels. For new growth engine, my personal opinion is that we should build a casino, like Singapore, also ...

Chan: But that would be difficult because Macao is being asked to do that, and Hong Kong is more on … if you look at the ‘8 centers’ on the 14th Five-Year Plan, we have to continue to be a good international financial center, we look at I&T, we look at or even the marine law, etc., or even arts and culture. Casino isn’t on the list, so that’s why it will be very difficult, isn’t it?

Cheah: Not impossible. I think if you present it right to the Beijing authorities and you package it right, you are talking about issuing one license here, versus I think at least seven in Macao, you know.

Chan: Right.

Cheah: the market is big enough to share. You see, the thing is that not withstanding all the suggestions that you mentioned, we are not really able to achieve a breakthrough in terms of Hong Kong’s future. We need to do things that previously was thought to be not feasible. Other ideas I would have is that we should review the current arrangements relating to the management of public and private sector savings that actually belong to the people of Hong Kong. We need to basically promote Hong Kong culture and art forms, especially those in the Cantonese language because we have to develop a sense of the Hong Kong identity that the people can rally around. I will say that the efforts to reduce the rich-poor gap is looking critical to me. Hong Kong’s Gini Coefficient is something like 56 if I remember, it's very high by any standards. The rich-poor gap in Hong Kong is significantly higher than the UK, US, Japan, the Chinese mainland, etc. 

Chan: Just now when you mentioned that Hong Kong has monopolies, I think I know what you are referring to. I think that happens in many countries as well. But one thing that I am sort of more concerned now is about the local people. If you look at a couple of youngsters, who want to start a restaurant or coffee shop, the rental are high, and it is very hard to find good people to help them. And now we have the GBA, the Greater Bay Area, a lot of people going overseas. So, this is more imminent as an issue compared to the long-term structural issues. How will you suggest tackling this and how can our young people be part of this growth engine again?

Cheah: The underlying thing about Hong Kong is that as a location, it’s becoming less and less competitive. Costs are too high, and there's no new engines to allow for growth. So, I would actually be even more, as a matter of urgent priority, try to integrate more forcefully with the GBA.

Chan: Even that direction?

Cheah: Yes, yes, because I think if you don't have a competitive society globally, you are left with nothing to do. So, I know it sounds crazy right now, but you know, dreams, when they first start they sound crazy, and then later they become reality. I have thought about whether we should have closer economic integration with Macao and with Shenzhen. 

Chan: So, basically the GBA, isn’t it?

Cheah: Yeah, but much faster than we are doing today.

Chan: Right. And we all know that the US elections are looming and the contenders will want to show that they are harder on China than the others. What is your take on that?

Cheah: I think serious … this is only my personal opinion. I don’t have any special information. But I think one of the reasons you haven’t seen more aggressive economic and fiscal stimulus on the Chinese mainland is because they are saving it up. Just in case US politics turn more hostile towards China later this year or early next year, they still have a lot of room to stimulate the economy. 

Chan: Right.

Cheah: People are preparing for stomping the world.

Chan: And also John Lee is also leading our government to enhance the relationships with ASEAN countries. And is this the right direction?

Cheah: Of course, yeah. I think it has been difficult for the Hong Kong administration to focus long-term issues because of the destruction caused by social unrest, and this and that. That is why it is important to cut through this.

Chan: Right.

Cheah: And achieve a system where there is popular representation, universal suffrage, that allows the government to then connect with the grassroots more forcefully, and get on with reform.

Chan: Right. Dato Seri, last question for you: someone said the future Hong Kong, saying that the city is dead. Simple answer, do you agree?

Cheah: No, I don’t agree. I think Hong Kong with 7.5 million people, backed by the 1.4 billion people in the mainland, definitely has a great future. But you know, there's a saying – “praise the lord and pass the ammunition”. We got to help ourselves, we can’t just keep reaching out to the mainland for them to help us out. And also one last point I want to make is that I think Hong Kong, for too long, has been run by people, with a civil service mentality. We need some real leadership here.

Chan: Right. Thank you, Dato Seri Cheah, for your analysis and valuable insights into the future of Hong Kong. Your own journey serves as an inspiration to us all, to create value in all endeavors. 

The late Rakesh Jhunjhunwala, a billionaire investor, said, “Value investing is a profound lesson in patience and vision, where the true value of an investment lies not in its price today, but in its potential to shape a brighter tomorrow”. Have a good evening and see you next week!