Hugh Young, abrdn Asia Focus: Inflation trouble could trigger ‘social instability’ in UK

Business Editor

A VETERAN international fund manager has warned high inflation could trigger “social instability” in the UK and other countries, declaring “it needs some very visible help for the people worst affected” to “keep the rich in power”.

Hugh Young, head of Edinburgh-based financial giant abrdn’s Asia operation, meanwhile highlighted his belief that more investors were watching China’s attitude to Taiwan in light of the Russian invasion of Ukraine.

And he declared: “Hopefully, China has been put off a little by what has gone on.”

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The Bank of England forecast this month that annual UK consumer prices index inflation would now exceed 10 per cent later this year.

Asked about the UK inflation picture, Mr Young replied: “It is happening everywhere in the world, to be honest. We are experiencing the same in Singapore, which is totally dependent on imports of food, energy prices.

“It is not just the UK. It is everywhere. The rich will have enough money. Yes, they will have slightly less money but still rich, while the poor will be forced to make some horrible choices. That is a big problem globally.”

He added: “I think it can cause social instability in certain places. You need the combination of circumstances…It could cause it in the UK. I am not so sure anywhere is immune from it. It needs some very visible help for the people worst affected, at the lower rungs of the economic scale, just to keep the rich in power...

“I think every society is facing that.”

Mr Young highlighted how the Russian invasion of Ukraine had made investors focus more on China’s attitude towards Taiwan.

He said: “China’s attitude towards Taiwan remains steadfastly unchanged – ‘it is ours’. It has been a central part of policy from day one. It is not the attitude that has changed. Xi Jinping has occasional displays of force. You have had Chinese aircraft fly into Taiwanese airspace.

“I think there has been more people watching what has gone on with Russia and Ukraine and thinking… ‘what if China does the same?’. It has always been a possibility. I wouldn’t assign zero chance to the possibility. It is not zero.”

Mr Young added: “It (China) is not hand in glove with Russia on Ukraine. It has been fairly cautious in the way it supports Russia. I think it is trying to remain as neutral as possible but people in the West have put it squarely in Russia’s camp. It is clearly more in Russia’s camp than it is in the West...

“There must be a niggling suspicion that if China ever did the same in Taiwan, the stock market would disappear for the international investor. That is clearly an extreme [but] we would have said the same thing three months ago about Russia.”

Mr Young highlighted his belief that there remained “so much opportunity” in Asia but also flagged the challenges.

He said: “Asia is facing all the problems the rest of the world is facing, to a greater or lesser extent, depending on which bits of Asia, so slower growth, rising inflation, rising interest rates – all these pressures coming through – supply chain hiccups partially due to differential Covid policies, particularly in China, and politics figures – it figures everywhere.

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“But we are seeing political change or hopefully political change in Sri Lanka, which is a basket case at one end of the spectrum. At the other end of the spectrum is another basket case – the Philippines and Marcos (Ferdinand Marcos Jr.) coming to power there. It just shows how politics can affect things.”

Mr Young noted the “go-go stocks have come off more than the steady Eddies” amid stock market turbulence in Asia.

And he highlighted the extent to which the investor mood towards the Chinese stock market had changed in the last nine months.

Mr Young said: “China as a market has been hit hard generally. I think that is probably for a variety of reasons. It is always hard to put [fingers] on it – whether people have just slightly thought, ‘China – is it the same as Russia if something happens?’. There must be an element at the back of people’s minds, if not at the front of people’s minds.

“In a more fundamental sense, it is that China is slowing for a few years now. It has been designed to slow and broaden out by the powers that be.”

He also cited the impact on the Chinese stock market of “Covid, with all the headlines we have seen, with Shanghai locking down, Beijing locking down”.

Mr Young added: “If one person in a factory gets Covid, it is shutting down, which is quite extreme.”

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He flagged “the Alibabas of the world, the Tencents” as examples of “go-go” technology stocks which had fallen in value.

Mr Young said: “International investors were very keen on China up until about nine months ago, when it was all flavour of the month.”

He noted the smaller companies fund he runs, abrdn Asia Focus, has “very little in China” and that people had been asking previously if it should not have more in the country.

Mr Young said: “There is interesting things going on there from a company perspective. It is just trying to find the right things at the right time. Investors have switched off in a big way in the last nine months. International investors tend to be fairly fickle – they are either all in or all out.”

“As a stock market, China is I would say looking decent value, rather than good value. Economic growth has certainly slowed, earnings growth has slowed.”

He highlighted increased regulation of Chinese companies such as Alibaba, noting they had been de-rated in terms of valuation as a result. However, he said this regulation was probably a good thing.

Mr Young, who is based in Singapore, said Asia was “still fascinating” for him.

He added: “There is so much opportunity out there. As an investor, it still looks very good value but it is going to be bumpy. This year is not going to be a good year for anywhere in the world but relative to other parts of the world, Asia remains…in pretty good financial condition.”