Western banks expect Asia-Pacific growth to pick-up now China has emerged from lockdown, but are careful not to put all their eggs in one basket by diversifying across the region
For the world’s leading private banks, the Asia-Pacific (Apac) region, is once more a priority area for growth. With mainland China gingerly emerging from prolonged lockdown and travel finally freed up, wealth management bosses are predicting renewed good fortune in the Year of the Rabbit.
But this is no longer the ‘Gung Ho’ approach preceding the wave of anti-government protests engulfing Hong Kong in 2019, before the Covid-19 pandemic loomed. There are very good reasons for this caution, structural and political, as well as economic.
Western banks including Citi, UBS and BNP Paribas have come too far in their Asian journey to scale back now. Management, employees and investors expect growth in their second home market after the worst of the Covid crisis, now that private banking ‘tourists’ have vacated the market. The likes of Coutts and SocGen have long gone back to their European roots, leaving behind banks committed well beyond a ‘project’ or experimental stage.
“Despite the macro headwinds, Asia and the region will continue to dominate wealth growth,” says Arnaud Tellier, wealth management boss for Apac at French bank BNP Paribas. “For Hong Kong, the city continues to play an important role as a gateway to mainland China’s wealth.”
His narrative, alongside those of fellow ‘Greater China’ enthusiasts, focuses on Hong Kong’s proximity to nine southern mega cities of China’s Greater Bay Area (GBA), clustered around the Pearl River Delta. This domestic expansion drive in Guangzhou, Shenzen and Zhuhai is coming to the fore once more, now that Beijing’s Belt and Road initiative, linked to China’s foreign policy of influence through infrastructure construction, takes more of a back seat.
Structural challenge
But the structural challenges facing wealth managers remain as deep as the economic uncertainty threatening China’s growth engine. First among these is continued emergence of a ‘talent gap’, plaguing Apac markets for several years.
Pre-pandemic, Hong Kong’s wealth managers persuaded young Mandarin and Cantonese speakers from families who had migrated to North America, Australia or Europe to return to their ancestral roots. But this has proved tougher, bearing in mind the shaky records of Hong Kong and mainland authorities in post-pandemic reopening.
“The industry, government and regulators have to continue to be more proactive to maintain Hong Kong’s competitiveness,” insists Amy Lo, co-head of the Apac wealth management division at UBS. This means an end to private banks purely poaching high flying teams of well-connected bankers from rivals.
Industry forums discuss the need to attract ‘elites’ from around the world, while cultivating home-grown talent in Hong Kong. The language coming from the shores of the South China Sea is no different from that in other centres, battling for global and regional custom in philanthropy, fintech and green investing.
Yet crucially, Apac leaders are once more backing the China growth story, recently rocked by government crackdowns on tech and online education. UBS is telling clients to invest on their doorstep, upgrading China to “most preferred market” status, expecting its equities to outperform Asia ex-Japan. BNP Paribas highlights “still attractive valuations” to returning domestic onshore and foreign investors buying into consumption-led recovery.
Hold your horses
While recommending diversification into global fixed income, US equities and hedge funds, banks, including Citi, warn clients not to get carried away in their Sino-enthusiasm, history telling us portfolios need to be more effectively managed, with a longer-term view. This means utilising volatility-based strategies alongside traditional directional trades.
Apac veterans understand that markets in their vibrant backyard can easily catch fright, the major banks becoming more careful about not putting all their eggs in one basket, increasingly investing resources in Singapore, servicing the economies of Indonesia, Malaysia and Thailand, to balance Hong Kong’s northern exposure.
“South-east Asia is the next hub for multinational companies. With its strategic location, rising population and increasingly tech-savvy workforce, the region is an appealing place for expansion,” confirms Ms Lo at UBS.
Her bank particularly likes Singapore due to the proliferation of entrepreneurs in the surrounding region, sourcing growing numbers of “billion-dollar unicorns” within a lucrative customer segment.
Singapore’s success in attracting family office business since launching an initiative in 2019 has also attracted attention. “Our Citi Private Bank business has grown its client base of family offices in Asia by about 40 per cent over the last two years, reflecting the uptick in family office activity in the region,” says Angel Ng, head of Citi’s Asian wealth business.
But this spotlight brings with it major risks, which banks are very much aware of. All are careful not to upset Chinese leaders in Beijing, who will tolerate top asset managers, tech gurus and bankers, as long as their profile and influence do not eclipse the politicians who oversee society.
Billionaire banker Bao Fan, now said to be helping investigating Chinese authorities, was apparently involved in setting up a Singapore-registered family office when he disappeared.
Asset managers have long had to second-guess Beijing when choosing which equity sector to favour. Now it appears private bankers and entrepreneurs must make a similar calculation when deciding where to invest their assets.
Amy Lo, Angel Ng and Arnaud Tellier are among speakers at the forthcoming FT Wealth Management Summit Asia, supported by PWM, to be held in Singapore on 16 March 2023. Readers are invited to register for the event here
