Following is the transcript of a CNBC interview with Donald Guloien, CEO, Manulife. The interview was broadcast on CNBC on 20 March 2017.
All references must be sourced to a "CNBC Interview".
Interviewed by Geoff Cutmore, Anchor, CNBC at China Development Forum 2017.
Geoff Cutmore: So you now have a wholly owned enterprise license here in China. What kind of products do you think you can now sell to the Chinese market that they need that you haven't been able to get to them currently?
Donald Guloien: Well initially we'll use it for selling to qualified institutional investors products from overseas. You know we have investment products that are manufactured around the world allowing people access to global investment opportunities and we'll be able to sell them to qualified institutional investors here in China.
GC: Yeah but what is the nature of those products, are these investment vehicles for high net worth? Where do you see the big opportunity?
DG: Everything in the products will be everything from equities to fixed income to Timberland and agricultural products.
GC: Why is there such demand for those products here?
DG: People are trying to internationally diversify and to try and diversify into different sectors of the economy.
GC: The economy here has seen tremendous expansion in the shadow banking sector and people are concerned about excessive leverage, and that creating risk for a hard landing. Are you potentially getting this license at a time just when the Chinese story could be beginning to deteriorate? Is there a prospect still of a hard landing here?
DG: I think there's very little prospect of a hard landing. If there's an economy that I feel a lot of confidence in it's the Chinese economy. After all it represents a third of the world's growth and is extremely well managed. The structural reforms that are being undertaken are reducing leverage or reducing overcapacity in a variety of industries and I think is going to minimize the risk, you can never say zero, of a hard landing.
GC: But there is a sense of frustration here it seems to me that they feel that just as they're starting to shed their training wheels as far as getting into the capital markets, we have a president in the United States who seems very determined to begin a trade war with China and a war of words over the Chinese Renminbi. Are you concerned at all that that may cause friction and problems for this economy?
DG: The benefits of trade are profound for every country that participates in trade. And yes there could be adjustments to the trading relationships but I don't think it's going to be a wholesale adjustment that wouldn't be in the interest of United States, that wouldn't be the interest of Europe, and that certainly wouldn't be in the interest of China.
GC: When we look at the opportunity in the Chinese market it's very clear that not only are investment products growing, the demand for them is growing, but the insurance product market is also very strong at the moment. Premium inflation is quite high here. How do you scale up in this market to take advantage, not only of China, but the growth that's going on in the region?
DG: We've operated in Asia for over 100 years so we have a lot of capability. We have 12,000 people on the ground here in China. And we not only have an insurance business but we have a wealth management business. Those businesses benefit from the growth of the middle class here. So we get roughly double GDP growth because of the growth of the middle class in China.
GC: What about buying your way into companies that already have operations in local markets?
DG: You know I would never say never but it's not high on our priority list. Our organic growth is great. We're growing at roughly 30 percent a year and that's more than satisfactory.
GC: As you look at the potential for investment return for your portfolios, to what extent are you concerned about some of the hubris we see right now, tremendous flow into ETF equity products stretched valuations in the United States. Are there risks to investment returns over 2017 from some of these factors?
DG: Relative to the growth in corporate earnings and the increased confidence of the consumer, it is not at, actually overstretched valuation. Sure it's higher than some of the trading range more recently but it's not at an all-time high.
GC: Do you think that there are risks from the Federal Reserve's beginning to raise interest rates here? I mean I'm surprised that you seem so relaxed by the tremendous run up we've seen in equity valuations?
DG: I've been very bullish on the U.S. economy for a long time. I think the Federal Reserve now is actually a lagging indicator. The Federal Reserve has been very concerned about shocks in Asia, geopolitical shocks, the impact of BREXIT, a variety of different things, the election, and was holding back. The Fed could have raised rates a quarter point over a year ago and done it a number of times in the meantime and still not deterred the growth of the U.S. economy. U.S. economy is really robust right now. So are the Asian economies. And so is most of the world.
GC: You say most of the world. But I think you still see some vulnerabilities as far as Europe is concerned?
DG: I think BREXIT is a concerning development. I also think the elections in France could you know, put real issues for the European economy.
GC: When do you think we get a green light on some of those problems for Europe? I mean do you see any evidence of a significant pick-up in activity that would encourage you to be perhaps more aggressive in that market?
DG: Our reason for not participating more significantly in the European economy is not just based on the economic outlook. It's an economy that's heavily saturated with insurance companies and wealth management companies of great scale. We see the growth in Asia far more appealing than the growth in in Europe over a longer term.
GC: We've seen a lot of consolidation taking place within the asset management industry particularly in Europe. Do you see yourself as a potential acquirer or a deal maker in this space? And if so why, and if not, why not?
DG: Our growth rate has been fantastic. We've had in the wealth management and asset management area, we've had 30 percent compound growth for a number of years. We've had something like 28 quarters of consecutive net inflows. So we don't have the same compulsion or organic growth is very strong. We have a variety of different asset classes that we provide to our investors that give them diversification and the returns have been actually quite good. And so for all those reasons we have a very powerful franchise. That's not to say that we wouldn't do an acquisition under you know trying to get some unique capability. We've certainly done that before with lift outs and acquisitions but it's not the major ingredient of our growth.
GC: And just to wrap up, just a question about way you see the medium term growth opportunity then. Give us some sense of how you and the board are thinking about where to direct the resources over the next 18 months to five years?
DG: Manulife's business is a third in Canada, a third in the United States and a third in Asia. We do life insurance and we do wealth management, global wealth management. We see global wealth and the opportunities in Asia as being the greatest opportunities for our company. You know Asia now represents 50 percent of the world's growth, 30 percent here in China. And that's the place we would have our eye on the ball.