Wealth management: Singapore’s wealth centre claim gains credence

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By:
Anuj Gangahar, Matthew Turner
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Legitimate rival to Switzerland; M&A robust in spite of banking downgrade

Singapore’s long drive to become the world’s leading centre for private asset management is gaining momentum as Asia’s wealthy exert greater influence and overseas investors flock to the city state.

According to a report from PwC, Singapore is closing the gap on Switzerland and London as the international financial centre of choice for affluent investors. For many years, Singapore has been talked about as the Switzerland of the east, without seemingly having the heft, in terms of assets, to back this up. Worries have persisted over the regulatory framework, with some expressing concerns about potentially troublesome levels of oversight. But the latest figures underline the global shift in emphasis for wealthy individuals. They also serve to illustrate an important point: much of the money in Singapore comes from abroad. It is an increasingly attractive offshore centre that is clearly on the rise.

Assets under management in Singapore were up more than 20% over the past year, according to the Monetary Authority of Singapore. The central bank said funds managed in the Lion City had risen to a record S$1.63 trillion ($1.28 trillion) from S$1.34 trillion a year earlier.

PwC said Singapore’s assets under management might overtake Switzerland’s by 2015, based on the current rate of growth. The MAS said about 80% of assets under management came from outside the country.

Singapore is taking advantage of several regional trends, most notably a move away from Hong Kong by several of the wealthiest individuals in Asia, particularly those from China, amid concerns about the increasingly close relationship between Beijing and Hong Kong.

Bad news

In spite of the good news for the wealth management sector, Singapore’s banking sector was downgraded by Moody’s last month, giving rise to concerns about the wider resilience of Asia, according to economists.

Asian bank-stability risk remains a pressing concern among Euromoney Country Risk economists, according to ECR’s latest survey.

Six of the 14 countries surveyed in the second quarter this year had lower bank-stability scores than a year earlier, while seven became marginally safer and one remained unchanged.

The survey’s bank-stability indicator measures banking-sector strength, and ranges from a score of 10 – signifying a perfectly functioning system with all possible exposures comfortably covered – to zero, where a systemic breakdown in the banking system has occurred.

Declining bank-stability scores across Asia this quarter give credence to the view that Asian economic fundamentals are deteriorating amid a build-up of financial imbalances owing to strong credit growth. "There is strong international evidence that investment booms associated with credit booms often lead to misallocations of capital, and China is no exception," states a report by Nomura. "Elsewhere in Asia, investment-to-GDP ratios are much lower than in China, but most have been rising, which is urgently needed for the economies to develop.

"However, there are some signs of misallocation, notably in the property markets. Low interest rates have fuelled property market booms in several countries."

China’s banking sector has emerged as the principal source of sovereign risk in the region, according to ECR analysts. The sovereign’s bank-stability indicator fell by 0.2 points to 5.5 in the second quarter of 2013, 0.4 points below the average Asian bank-stability score.

The deterioration in China’s bank-stability score comes at a time of growing fears over the size of the country’s shadow banking sector, with shadow financing now thought to account for half of the overall credit growth in the economy.

Moody’s cited rapid loan growth and rapidly rising real estate prices as elements of worry on Singapore banks’ books
Moody’s cited rapid loan growth and rapidly rising real estate prices as elements of worry on Singapore banks’ books
Moody’s placing of Singapore’s banking sector on negative outlook last month cited concerns about rapid loan growth and rising real-estate prices, which have increased the probability of a deterioration in the banks’ credit profiles. Despite Moody’s rating action, Singapore retains a solid bank-stability score and ranks alongside some of the world’s safest banking sectors, including New Zealand, Chile, Luxembourg and Sweden.

Robust activity

And deal activity remains robust. During the second quarter, overall Singapore M&A activity improved in terms of deal value, with announced deals amounting to $11.3 billion, up 56% from the first quarter, despite a drop in the number of announced deals to 175 from the previous quarter. Completed M&A activity increased almost 50% from the first half of 2012.

Total cross-border deal activity declined 35% to $9.1 billion, the lowest first-half volume level since 2009.

Inbound and outbound M&A activity dropped 28.5% and 36% in terms of deal value on the first half of last year. Meanwhile, domestic M&A activity totalled $3.2 billion, up 17% from the first half of last year.