Wealthy Asians trim risk, boost cash and real estate
Asia's wealthy have slightly shifted their allocations away from equities and towards cash and real estate as market volatility has picked up.
That's according to Capgemini's latest survey of high-net-worth individuals (HNWIs) in the Asia-Pacific region, excluding Japan, which also reinforces how much more open they are to wealth management solutions from the tech sector compared with elsewhere in the world.
The report released on Wednesday, which collated responses from 1,200 HNWIs across the Asia-Pacific region, shows equity allocations among Asian HNWIs decreased to 26.4% in 2018, from 27.7% in 2017. Allocations to cash and real estate, on the other hand, increased to 26.2% and 20.1% from 24.9% and 18.7%, respectively.
While the strong performance of equity markets was largely responsible for lifting private wealth in 2017, particularly in fast-growing markets like India and Hong Kong, stock markets have fluctuated a lot more in 2018, leading to the adjustment in HNWI allocations, Bill Sullivan, vice president and global head of financial services market intelligence at Capgemini, said.
“Part of it is just hedging with some of the volatility we’ve seen in the equity markets," Sullivan told AsianInvestor. "That’s one of the reasons why we’ve started to see a little bit of the shift moving forward.”
After averaging 11.1 throughout 2017, the Cboe Vix, a popular measure of market volatility derived from S&P 500 index options, jumped to 37.32 on February 5. It has averaged 15.9 year-to-date.
The uptick seen in cash levels is in line with where stock markets could trade in 2019, according to strategists at Goldman Sachs. In a report this month, they assigned a 30% probability to the S&P 500 contracting to 2,500 by the end of next year and recommended investors raise their cash allocations. In early trade on Wednesday, the US benchmark was trading at around 2,660.
Institutional investors in the region are also holding on to more cash, both for the modest returns as US interest rates inch higher and so as to be able to make investments further down the road as new opportunities present themselves.
SATISFACTION DEFICIT
The modest shift away from risk assets like equities among Asia’s wealthy may have been spurred by more than just investment returns.
At 31.5% in 2017, Asian HNWIs reported a return on investments that is higher than the 26.6% achieved by HNWIs in the rest of the world, the Capgemini report shows.
And yet Asian HNWIs were less satisfied in their wealth managers than their global peers.
Asian HNWIs gave their primary wealth managers and wealth management firms satisfaction scores of 62.4% and 61.5%, respectively, compared with 69.5% and 69.8% for HNWIs elsewhere.
That is partly due to concerns around the fees they pay.
“Of the areas that we found in terms of where they’re not necessarily fully satisfied, one is certainly around the fee structure in terms of fee transparency – the concerns of what kind of value are they getting for the fees that they’re paying,” Sullivan said.
Another area of concern was the ability of wealth management firms to offer a more holistic suite of services to their HNWI clients, including financial planning, retirement solutions, tax and legal advice, and future trust planning, he added.
GREATER TECH HUNGER
That is where new technology that uses big data to personalise wealth management services and automates lower value-add activities so wealth managers can focus on higher value-added services, can help.
“There are still some big opportunities for the Asian market in particular; the client satisfaction levels are lower in Asia than the rest of the world, so there are still some opportunities to help find ways to leverage technology to build those personal relationships more effectively,” Sullivan said.
The regional interest in technology was already there in last year's report, but it is building, with 81.5% of the Asian HNWIs polled in 2018 saying they would consider becoming a client of a big tech firm were it to offer wealth management services, up from 72.5% last year.
As in the 2017 Capgemini report, that enthusiasm for technology is more prevalent among HNWIs in Asia than elsewhere. What is especially noteworthy this time around, though, is that HNWI interest in big tech solutions has decreased over the last year, falling to 43.8% in 2018 from 50.5% in 2017.
The reason for that difference in attitudes could be age-related since younger HNWIs under the age of 40 show a higher interest in big tech wealth management than HNWIs over the age of 60, the report data indicates.
“Asia is certainly, probably, one of those exceptions where you’ve got a slightly younger population of HNWIs – you’re starting to see younger HNWIs who have a very high demand for technology enablement, and it’s going to be critical to meet their needs moving forward,” Sullivan said.