The
latest edition of the Asia-Pacific Wealth Report 2012
by
Capgemini and RBC Wealth Management confirmed some of the latest
trends in Asian wealth management.

A notable example is Singapore taking the lead as Asia’s
offshore private banking centre as well as wealth creation is
driven by the affluent segment ($1m to $5m).

Hong Kong’s HNWIs on the other hand faced a
difficult year and realised the steepest decline in wealth by 20.1%
to $408tr in 2011 in all of Asia.

Positive factors such as rising property
prices, increasing consumption driven by rising income levels and a
strong labour market were offset by a poorly performing equity
market, weak hedge funds performance, and declining exports given
its vulnerability to the global economy.

As a result the island state lost 16,000 HNWIs
(-17.4%) last year, which are classified as individuals with
investable assets of $1m and above, being outpaced only by
India which lost 27,000 HNWIs.

Curiously, the report finds that it is mainly
Asian wealth, and not inflows from other offshore centres, that is
fuelling the growth in the region’s offshore centres Singapore and
Hong Kong.

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Risk to Asia HNWIs

Given that HNWIs in emerging Asia still face
higher political risk, unattractive taxation, shallow bond and
equity markets and overprotective regulation limiting product
availability, offshore centres provide the opportunity to insulate
from volatile home currencies and inflation.

This is also to diversify their assets in
their home region, although unfortunately the report lacks hard
numbers on offshore fund flows.

Barend Janssens, head of RBC wealth management
– emerging markets, identifies a shift among Greater China
investors, which are traditionally more invested in Hong Kong,
towards Singapore.

“While South East Asian HNWIs are still very
Singapore focussed, we see the beginning of a trend where
investors, particularly from China and Taiwan, look at Singapore
for offshore investments rather than at Hong Kong, which is
increasingly perceived under Beijing’s influence,” he said.

While Hong Kong scores in terms of financial
confidentiality and deeper capital markets, Singapore particularly
benefits from its regulatory set up, which is perceived hard but
fair.

Despite the more regulatory pressure,
Singapore’s laws are perceived as transparent and straightforward,
while Hong Kong’s framework is not well developed and subject to
change says the report. 

It is also easier for firms to plan and
implement new regulations with a single regulator, such as the MAS
compared with multiple regulatory bodies in Hong Kong.

Lastly the differentiation between the mass
affluent and the HNWI segment enables private banks in Singapore to
offer more specialised and sophisticated solutions to HNWIs, which
are off limits for mass affluent investors. 

Another interesting finding of the report is
that across Asia the ultra rich, with investable wealth of more
than $30m are getting poorer and decrease in number by -5.2% and
-3.9% respectively.

Likewise mid-tier millionaires ($5m to $30m)
are decreasing in both value and numbers, albeit a lesser
degree.

On the other hand the affluent segment ($1m to
5$) is still slightly growing both in numbers and in values by 1.9%
and 1.5%.

 

Mass affluent surge

Though not covered in the Capgemini report,
the mass affluent ($100,000 to $1m) is the fastest growing segment
in Asia Pacific driving the development of an onshore wealth
management model in many emerging markets.

The liberalisation of financial markets, a
recent trend towards good governance and over performing equity and
bond markets in Malaysia, the Philippines and Indonesia have made
investing onshore more interesting for investors.

Janssens differentiates though: “The rise of
onshore wealth management is hardly affecting the growth in
offshore markets.

“Onshore wealth management is mainly driven by
the mass affluent segment, whereas HNWIs still prefer and demand
the flexibility, variety, sophistication and confidentiality of
offshore centres.”

 

Emerging Asia gathering
speed

The World Wealth Report 2012 – published
earlier this year – marked the change in global wealth
distribution, identifying Asia Pacific as the region home to the
largest HNWI population and eventually overtaking North
America.

However, the region is also not isolated from
global developments and investable wealth also declined slightly by
1.1% to $10.7tr, driven by contraction particularly in Hong Kong
(-20.1%), India (-18.0%) and to a lesser degree in Taiwan (-7.8%),
Australia (-6.9%), Korea (-3.9%), and Singapore (-3.1%).

There is a general trend seeing wealth
declining in Asia’s mature markets and it is expanding in emerging
Asia.

India and Japan break out of their clusters
given Japan’s positive growth (+2.3%) driven by high government
spending following the Tsunami in March 2011, a strong yen, and
traditionally conservative investment style of its investors.

India, on the other hand, was strongly
affected by high inflation and the political impasse reflected for
instance in the weakest equity performance in the region.