People plus technology central to Asia’s future

Covid has been one of the key issues shaping Asian economies and wealth management markets for the last two years, but new dynamics are also expected to enter the discussion, believes Agnes Chen, head of the Asia-Pacific region for CSC Global Financial Markets. 

While Covid and associated lockdowns have materially damaged many of the region’s economies, and continue to do so, future prospects remain optimistic, she says. “If we assume that lockdowns come under control within the next couple of months, as we gradually open up, then we could see a strong recovery for the second half of the year consistently for Asia.”

The “different dynamics” which Asian economies may experience in 2022 will accompany a “rebalancing” of risk against Covid in both Hong Kong and China, believes Ms Chen. It is the countries further to the south, however where she expects the best results. “Growth forecasts for south-east Asian countries such as the Philippines, Thailand, Indonesia and Vietnam have been promising in various sectors,” she adds.

Growth in these countries should also stimulate the development of Singapore as a regional hub for wealth management, as the Lion City opens up gradually to foreign visitors once more. Singapore is also likely able to leverage its status as a business and lifestyle destination for Chinese and international clients, reflecting the continued growth of wealth in the Asian region. 

During this time of political and economic adjustments, believes Ms Chen, “we may, for the time being, see more of a focus on growth contribution from others parts of the region than China”.

Regional financial hubs

Hong Kong is not to be written off as a financial centre, she says, believing the city serves as a natural link between the internally-focused Greater Bay Area (GBA) and the Belt and Road initiative, which currently links Asia’s transport infrastructure with that of Europe. “Hong Kong, with its long-standing goal as a link between mainland China and the rest of the world, is likely to be the pivot between the GBA and the global co-operation project.”

Despite the ongoing political turmoil there, Ms Chen believes Hong  Kong will continue playing a key role as a wealth management centre. “Hong Kong is unique in that it is very different from China,” she says. “But it will very likely stay part of China. So in this sense, given its legacy as a financial centre, it will continue to  be important for the rest of the world in connecting to mainland China.”

The competition with Singapore is also a hot topic across the region, as private banks and family offices look to base themselves in the best regulated, efficiently run hub, with high quality investment expertise.

“Singapore is rising to become a top financial centre,” adds Ms Chen. “But it cannot replace Hong Kong as a connecting route to China. Hence we expect Hong Kong to remain important until there are further developments in the China market.”

Cross-border expansion

As opportunities across the continent begin to grow, and the region’s wealthy families diversify both their business interests and investments across Asian borders, banks will match these ambitions with their own expansion plans, says Joseph Poon, group head of DBS Private Bank, based in Singapore. “We are born and bred in Asia, where we have operations in retail, corporate and private banking across all markets,” he says, with clients in recent years increasing  their cross-border activities.

He is particularly keen in using Singapore as a pivot for these regional expansion pushes. There have been many stories of global families dipping their toes into the water in Asia, through exposures managed  by wealth advisers based in Singapore. “Singapore is not just a testing ground, it is a landing point for many families coming to Asia,” he says.

Not only will the city state remain at the “centre of economic activity and growth for years to come,” but it will also be an efficient regulatory hub for the launch of investments in classes including private equity, private debt and real estate, he believes. “That brings a huge opportunity for non-Asians to invest in those markets, within Asia, themselves,” he says. 

“Moreover, we are seeing friendly regulators in Singapore introducing very stringent structures to allow people to establish a highly institutional family office to tap into not just the growth option in Asia, but also the expansion of their businesses outside Asia, into Asia.”

In tandem with this expansion of business territories, we will likely see a broadening of investment classes in clients’ portfolios, believes Jean-Louis Nakamura, chief investment officer for Asia-Pacific at Swiss bank Lombard Odier. Concentrated portfolios, often focused on the  deal-making, transactions and illiquid private equity or real estate investments – as mentioned by Mr Poon of DBS – were often the order of the day in the past,  he says.

De-risking portfolios

De-risking portfolio in today’s volatile markets means diversifying them both internationally and in terms of asset classes, both in the liquid and illiquid spheres of assets. “For quite a long time we have now focused on portfolio construction and the necessity to stay liquid or nimble enough through an asset allocation based on risk measures and factor-based exposures,” says Mr Nakamura.

This asset mix increasingly includes a broader mix of traditional, alternative and sustainable investments, says Lavanya Chari, global head investments and wealth solutions at HSBC Private Banking. “The asset mix in Asia has changed over the last few years,” confirms Ms Chari. “

We see an increased demand for alternative assets: private equity, private credit, hedge funds and real estate. There is also a bigger uptake of managed solutions, including discretionary mandates,” which she admits were not previously popular in the region.

Ms Chari also points to record flows into sustainable investments during 2021, highlighting recent research from HSBC Asset Management, showing half of affluent and high net worth investors in Hong Kong, China and Singapore believing their portfolios will comprise entirely of sustainable investments within five years. “That is a very, very significant statement from clients,” she says. The nascent area of digital assets, which have been plagued by muc volatility recently, is another class the bank continues to “observe closely”.

The bank is also advocating structured products as an increasingly popular implementation mechanism for its investment calls. This is a controversial plan, as HSBC was among the banks whose reliance on structured products led to mass demonstrations by Hong Kong-based investors who lost money at the time of the financial crisis. Ms Chari acknowledges previous mis-selling scandals and says controls around mis-selling have since been tightened.

“I think it is absolutely critical that the relationship managers and investment counsellors are trained, and we sell the products that are suitable for our clients,” she says. “I do believe that as an industry, broadly, we have the controls, the systems and the suitability mechanisms in place that are required to be able to sell these products in an appropriate and suitable manner for our clients.”

When it comes to providing advice to clients on these products and strategies, external managers (EMs) are likely to play an increasing role in the process, says Alvin Lee, Singapore-based group head of wealth management at Malaysian bank Maybank, who detects the trend of many private bankers leaving to start up their own boutique EMs, while still relying on the reassuring brand and infrastructure of their former parent institutions.

Clients, he says, benefit from the independence of the advice and from lower costs. “I do think that EMs are increasingly an integral part of the wealth management industry,” he says.

Identifying key trends

There are, however, several factors which bankers must consider before setting up or joining an newly established EM. “If you want to set up your own boutique, you need to consider whether you have the infrastructure, the people, the compliance and KYC, even though you are relying on the big banks,” he says. “You do need to have some in-house expertise in those areas. EMs will increasingly be integral to that.”

The panel identified some key trends which may influence the shape of the successful wealth manager of the future. “Asian wealth is looking beyond the region for both diversification and investment, and also business and family opportunities,” says HSBC’s Ms Chari. “Therefore it’s absolutely crucial that our clients be supported locally and globally.”

Technology has allowed the wealth managers who offer these services to do so in a personalised, convenient and scalable format. “Everything that we do is now mobile first,” says Ms Chari. “The model is people plus technology, and Covid-19 has accelerated client adoption of digital tools and channels for the long-term, including in Asia, where 64 per cent of our wealth management clients say they will increase usage.”

During 2021, HSBC, along with other banks has been busy hiring relationship managers in the Asia-Pacific region, with plans to step up recruitment further until 2025. “People will still continue to be one of our biggest assets,” she says. “Many clients still want that human contact and connection.”