Eleven Ying, global market head and Singapore CEO, Heritvest Global shares his views with Asian Private Banker in ‘The Final Word’, a year in review by the region’s private banking leaders as they share their thoughts and opinions on key issues around industry trends, investments, regulations, and technology in 2021, as well as providing their predictions for 2022.
The previous 12 months have proved that private banks can draw in significant amounts of net new assets and client accounts as the industry has adapted to widespread travel restriction due to COVID-19. With the potential easing of these restrictions in 2022, new variants aside, to what extent will private banks return to their pre-pandemic methods of sourcing clients and gathering assets?
The pandemic has changed everyday lives in many ways, including the modes of production, lifestyles, and the core investment and wealth management needs of HNWIs. In addition, the pandemic has affected the economic recovery, as well as supply and demand. Therefore, there will certainly be changes in asset allocation as well. Moving forward, instead of asking to what extent we can revert to the situation pre-pandemic, we should focus on adapting to this new normal and adjust appropriately.
One of the changes occurring to HNWIs in mainland China is that they have become more concerned about safeguarding their wealth, health and mental well-being.
The volatility in the global market between 2019 to 2021 has shaped the investment style of HNWIs. They are now more focused on stable returns and managing risk. Their asset allocation has become more diversified with smaller allocations towards fixed income, real estate, trust products and principle protected wealth management products. On the other hand, allocations to equity assets increased significantly. (By equity assets, we are referring to public equity funds and private equity funds.)
Due to the pandemic, awareness surrounding risk protection has been strengthened, which has promoted the rise of the demand for insurance.
Uncertainties caused by the pandemic have highlighted the importance of wealth inheritance and strengthened HNWIs’ awareness on family inheritance. HNWIs are equally interested in legal and tax services, and family spirit/culture inheritance. Take our Heritvest Global family office as an example, the number of family trust structures established in the first half of 2020 increased by 100% compared to 2019.
As for the physical and mental well-being of HNWIs, the pandemic has shown us the importance of medical resources. HNWIs are now more willing to spend on additional health services to make up for the inadequacy of existing medical system, such as seeking better medical resources abroad with the help of high-end medical insurance. They also value professional institutions’ ability in medical resource integration and services.
The best way to find new customers and net new money, is to understand the customer’s needs. Since customer needs are changing, our services need to adapt to the change accordingly.
Given the majority of Asian wealth is located onshore, how should international private banks best target and differentiate themselves in these markets? For domestic regional private banks, what is the most effective strategy for competing with international players?
Personally, I believe that international private banks and domestic regional private banks should not deliberately pursue anything different. This is a process of learning from each other and drawing on the experience of one another.
The last 12 months have been volatile for investors in China, from the meltdown in the high-yield bond sector to regulatory actions targeting sectors such as technology. How are you advising clients to invest in the world’s second-biggest economy in 2022?
China’s annual GDP growth rate is expected to be 5.0% in 2022. We just happen to have released our “Guidelines for 2022 Global Assets Allocation”. Our core investment themes for 2022 are:
• along with the uptake of vaccinations and effective medicines, healthcare, pharmacy and other benefited service-oriented sectors could take off.
• pay attention to the application of cutting innovation technology sectors, which should help elevate the productivity of the whole society
• against the backdrop of increased uncertainties, investing in alternatives can effectively complement the traditional portfolio
• climate change will become the key trend in ESG investments
• China’s high-quality development will centre around the specialisation, refinement, differentiation and innovation
• under the main theme of China’s internal circulation, consumption will improve in quality and increase in volume
• China’s China “dual carbon” goals (reaching carbon emissions peak before 2030 and becoming carbon neutral before 2060) will aid the long-term development of new energy
• in the new wave of China’s infrastructure investment, there will be excellent opportunities to invest in logistics-related real estate
What will be the key investment themes that shape both global markets and those in the region in 2022 and how is that feeding into how you advise clients?
Looking ahead to the global macro-economy in 2022, we believe that herd immunity of COVID-19 will be acquired globally. The momentum of the rapid recovery of developed economies in 2021 may weaken in 2022. The economic growth of emerging markets will increase as vaccination rates increase. This difference in economic growth is expected to return to the historical average level, which will help to resolve supply chain bottlenecks and the high inflation in global economic development.
There are two major risks to the improvement of the global macro environment in 2022: the global economy faces the risk of “quasi stagflation”; and supply chain bottlenecks may still restrict supply in the short term, and inflation will remain high, making it more difficult to coordinate policies.
It is expected that debt default risk prevention and control will be in the spotlight. There’s little room for fiscal policy to change. Monetary policy will move towards normalisation, global interest rates will rise, and values of various assets will be revalued. Under the unstable economic and financial environment, the asset allocation strategy will be seeking structural hedging around core assets.
In 2022, market transactions will be carried out under the logic of “quasi stagflation”, and for this reason the uncertainty will be high. We suggest that the overall asset allocation strategy in 2022 should focus on stability; pay attention to longer-term investment themes and grasp offensive opportunities.
In 2022, the global financial market will be affected by a variety of compound risk factors, and market volatility will increase. Considering risk and return expectation of various assets, from asset allocation perspective, our priority of markets is: developed economies > emerging economies; from asset category perspective, priority is: alternative investment > USD > global equity > commodities > gold > bonds.
One of the most-repeated views over 2021 was that the ‘60/40’ portfolio is dead, given the ultra-low to negative yields offered in many parts of the sovereign bond markets. From alternatives to commodities to private credit, how are you helping investors to allocate assets in what was traditionally the fixed income part of their portfolios?
Fundamentally speaking, this question is about how investments can be made in bonds in an environment where inflation is expected to rise and interest rate to increase.
With the continuous rise of US bond yields, inflation has once again become the focus of market discussion. Inflation expectations will force central banks to consider gradually raising interest rates from the current low interest rate environment. Although the rise of interest rates will reduce the price of bonds, the anticipated increases in interest rates will likely bring investment opportunities to conservative investors.
a） Long bonds with shorter maturities:
In the expectation of rising interest rates, bonds with shorter duration mean that their prices will not decline significantly affected by the rise of market interest rates, because the shorter the duration, the lower the sensitivity of bond values to interest rates. Conservative investors can receive more stable interest and bear smaller bond price losses at the same time.
b） Short developed countries’ Treasury bond futures contracts:
The global economy has started to recover from the lowest point of the pandemic. Due to the pandemic, interest rates in developed countries have been reduced to a historically low range, which means that as long as the economy rebounds, there will be more room for interest rates to rise. Because the expectation of interest rate increases in developed countries is higher, the price of Treasury bond futures contracts in developed countries is expected to drop. Shorting such futures contracts will allow investors to profit from these futures discount because of backwardation.
c） Long redeemable bonds
In the market where the interest rate is expected to rise, investors of redeemable bonds will have a more favourable position. Investors buy redeemable bonds at a discount or enjoy the “sweetness” of higher interest rate. When the interest rate rises, the issuer is less likely to redeem the bonds (because the borrowing cost is higher). Then the price change of redeemable bonds will be consistent with ordinary bonds. Investors of redeemable bonds still enjoy higher interest income which will be a more stable income for conservative investors.
In terms of asset allocation, a multi asset portfolio is the most effective way for dealing with uncertainties.
Sourcing talent in the region’s private bank industry is becoming tougher than ever, pushing up hiring costs across the region. How can private banks ensure they have adequate access to the talented relationship managers and other front-line staff over the coming years? What is the key to attracting the right candidates?
Experienced RMs with solid client bases are scarce resources. Every bank or firm is competing for them. However, experienced relationship managers hesitate to move from their current banks to another bank/firm nowadays. They are afraid of losing clients as Private Bank’s KYC and account opening processes are extremely complicated and can take months.
The bank or firm should know its own strength and weakness, which determines its target customer segment(s). The bank or the firm can then focus on finding the right RMs who have access to the target customer segment(s).
This doesn’t mean we can only source RMs from private banks. The bank or firm could hire less experienced RMs and provide them with adequate support from experienced ICs and product specialists — including both investment products and credit solution.
Having a robust onboarding process and support will be a key factor in attracting experienced RMs.
How important is governments’ support to ensuring family office industry prospers in the region? What is at the top of your wish list for how governments in Hong Kong and Singapore can support the private wealth management industry’s development (e.g. less travel restrictions, more tax incentives, review/relax on a particular regulation)?
Government’s support for family office is important. Singapore government encourages the wealthy family to set up family office in Singapore with immigration benefits. Travel restriction is less stringent in Singapore than Hong Kong which is another plus for Singapore.
Meet 2021’s industry leaders in the full round up of of Asian Private Banker‘s The Final Word 2021.