Asset managers can expect continued growth momentum in China’s high net worth individual (HNWI) market on the back of IPO activity for new technology listings and the launch of a wealth management connect scheme designed to promote cross-border investment in the Greater Bay Area (GBA).
In 2019, both the wealth and population of the HNWI sector grew by almost 9% globally, according to the World Wealth Report 2020 issued by Capgemini recently. However, HNWIs in the Asia-Pacific region fell slightly behind the global average growth rate, expanding just 8%, but China managed 11%, and Hong Kong and Taiwan also recorded double-digit growth.
And, despite the impact of the Covid-19 pandemic on markets, this growth momentum is likely to continue in 2020, especially with the recent activity on the Shanghai Stock Exchange's Science and Technology Innovation Board (STAR), where a number of start-ups have listed and Alibaba’s Ant Group’s IPO is in the pipeline. The fintech giant is also planning to list on the Hong Kong Stock Exchange. Ant’s share sale is expected to be one of the largest ever and to generate a significant number of new HNWIs as its employees currently hold 40% of the group’s shares.
“The opportunities around the new generation of HNWIs are immense and wealth management firms should be ready with a strategy to capture this potential market,” says Elias Ghanem, Capgemini’s vice-president, global head of market intelligence - financial services. “Young investors entering the HNWI segment want better service in the areas of inheritance management, education about investment management, and financial advice at critical life stages.”
This sale will also boost emerging family offices in China. “With more than 100,000 super-rich families in China, whose wealth grows by 11.2% every year, the market is very promising for family offices,” Ghanem says, noting that a recent study by UBS, Campden Wealth, and FOTT found that two-thirds of its respondents in China use family office services.
In addition to the IPO momentum, China continues to further open up its financial markets. Last month, it was announced that, in order to facilitate investment by HNWIs, a cross-boundary wealth management connect pilot scheme, Wealth Management Connect, will be implemented in the Guangdong-Hong Kong-Macao GBA jointly by the People's Bank of China, the Hong Kong Monetary Authority, and the Monetary Authority of Macao.
“The connect scheme will lead to more growth opportunities for wealth management firms in the GBA as investors will likely explore more choices, especially from a risk diversification perspective in the current volatile environment,” Ghanem points out.
Under the scheme, individual residents in the GBA can carry out cross-boundary investments in wealth management products distributed by banks in the GBA. Similar to other connect schemes, Wealth Management Connect has southbound and northbound components, depending on the residency of the investors.
Although the details of the pilot scheme have not been made public, investor appetite for both the southbound and the northbound components is promising, according to Ghanem. “Investors from the mainland will look to tap into the mature financial expertise and infrastructure of Hong Kong, while investors from Hong Kong will look to tap into the mainland’s market attractiveness.
In the meantime, the Covid-19 pandemic is generating new investment trends in the HNWI space. “One trend we are seeing since Covid-19 is increasing demand for sustainable investing in Asia,” Ghanem notes. “Since the beginning of last year, UBS's 100% sustainable investment portfolio in Asia has more than doubled to US$1 billion in assets.”
Chinese HNWIs, in particular, show a high interest in sustainable investment products, he adds, while Hong Kong’s HNWIs aren’t quite as enthusiastic.
In terms of asset allocation, the unpredictable nature of this year’s market has suppressed the risk appetite of HNWIs, and they are shifting more to safer assets like cash and fixed income, Ghanem states. “Cash and cash equivalents, followed by equities, were the preferred investment choices for HNWIs in mainland China and Hong Kong during the January-to-February period of this year.