The allure of Asia for wealth managers was reinforced this week in a HSBC report, arguing how the region’s wealth has tripled since 2001, but with little asset-diversification, investment consultants face a swath of opportunities.
“But, even here, the shift is surprisingly small – ‘but hasn’t the bond market exploded in size in recent years’, you might wonder; well, yes, but broad money supply and even equity market capitalization has climbed, too.
“Plenty of work left, therefore, for wealth advisers in the region.”
One reason why US financial wealth is now being eclipsed by Asia’s is that Americans are holding a greater share of their assets in real estate, says Neumann.
“The value of residential property is down from a peak of $25 trillion in 2006, but is still larger than either Japan’s or China’s – even if the gap has narrowed,” he says.
China’s household wealth at $28 trillion versus $32 trillion in Japan has buoyed the region ex-Japan, which will overtake the US’s $62 trillion market in 2015. Asia as a whole overtook the US in 2007.
The estimate of Chinese household wealth is challenged by the lack of data on mark-to-market real-estate valuations and the fact the country’s growth has been powered by an effective tax on households given widespread financial repression.
According to a Celent report in January, the total personal wealth of China will reach $12 trillion this year. It points out that the wealth-management industry is behind in China and will need to catch up with the needs of its wealthy individuals. Clients in Beijing, Shanghai and Guangzhou are becoming interested in overseas investments to diversify their portfolios.
The report adds that wealthy Chinese are reducing their savings products and instead moving into investments, particularly structured products.
Structured financial-management products are a key development area. From January to July 2013, 20 banks issued 982 types of structured products – eight foreign banks issued 527 types; 12 Chinese banks issued 455 types – with their linked global investment assets involving foreign-exchange rates, interest rates, stock indices, funds, futures, gold prices, crude oil prices, etc, and a range of assets that covered mature and emerging markets.
It also says family-office services are trending upwards, with domestic private banks beginning to target wealth families as a whole, and that trusts will continue to be the biggest players in the industry.
Celent estimates that by 2015 private banks will have $993 billion of assets in China under management, while trusts will have $1.6 trillion.
With artificially low returns on bank deposits, it’s no surprise China’s wealthy are turning to alternative investment products, posing a challenge for regulators.