Hong Kong mass affluent set to boost overseas allocations

Amid global uncertainty over the European debt crisis and the likely effect of the second round of US quantitative easing, most mass-affluent individuals in Hong Kong are planning to boost their level of investment, with a significant proportion likely to buy non-Asian assets.

Such were findings published last week by US investment services firm Charles Schwab based on a survey of Hong Kong investors with over HK$800,000 in net worth.

Still, Asia clearly remains the most popular region among respondents: 81% have current investments in overseas markets, with China being the most popular market (66%), followed by Asian emerging markets (44%) and then the US (28%).

The main reason for investing overseas – cited by 43% of respondents – is to balance and diversify portfolios via non-Hong Kong investments. The second most popular reason (cited by 20%) is that they see growth opportunities are generally stronger outside Hong Kong now.       

Sentiment is positive overall, with 82% of investors planning to step up investments in the next six months, and 58% planning to boost their current investments in overseas assets.

Moreover, around half (48%) plan to invest in new overseas markets in the next six months, with Asian emerging markets the most popular choice: one-fifth (22%) of those who will boost foreign investment cite those countries as their markets of choice, followed by Australia (18%) and the Middle East (16%). Further down the list, 12% cited Europe (excluding the UK) and 9% cited the US as markets they might select.

Around a quarter (28%) of Hong Kong mass affluent already invest in US securities, while 26% have done in the past. The most popular proportion of a portfolio to have in US securities is 5–10%, with a third (32%) of respondents citing that as their allocation. And almost half (43%) of those with US securities exposure have more than 20% of their portfolio in such assets.

Although investors agree that the US market offers a platform for diversification (71%), chasing speculative short-term gains has overtaken the objective of long-term growth. Current investors in US securities believe the US market is offering more short-term growth (38%) than long-term growth (16%).

“Overall, the survey results show that premier Hong Kong investors are sophisticated and active ones who do look outside their home market to diversify their portfolios, which is a positive and encouraging sign,” said James Sun, managing director, Charles Schwab Hong Kong.

“In Schwab’s view, emerging markets in the near term are at risk of becoming overvalued, with an influx of capital,” he adds. “We are still bullish on the emerging-market story longer term, but are becoming uneasy about the one-sided nature of this trade where even famed value and bond investors have positive views on this asset class.”