China, India Most Attractive As Asian WM Revenue Softens - Survey

Rachel Walsh

21 April 2009

Revenue growth in Asia's wealth management industry is expected to soften significantly during the next two years, according to a Barclays Capital survey of Asia's leading wealth managers, who between them have more than $5 trillion of assets under management.

The wealth management survey involved 123 respondents from 53 wealth management organisations in seven countries across Asia excluding Japan, including asset managers, insurance companies, local and global retail banks and private banks.

In last year's survey, around 90 per cent of wealth managers expected revenue growth in Asia of more than 5 per cent per annum in the coming two years, while only 41 per cent of respondents expect such growth in this year's survey. Worse news still, this year 18 per cent anticipate negative returns.

China and India continue to be viewed as the most attractive markets in Asia, both in terms of potential for business expansion and for their expected revenue growth rate. A majority of wealth managers see China as the most attractive market, with a quarter of them still forecasting the country to generate revenue growth of more than 15 per cent per annum during the next two years. Next is India, with a fifth of respondents still anticipating such growth.

Korea is viewed as the least attractive market in Asia, with 29 per cent of wealth managers forecasting negative revenue growth. This is not a surprising result, as many banks, in anticipation of lower revenues, have cut back their global wealth management staff. And Asia has not been spared.

The key challenge facing wealth managers is how to adapt to the changing regulatory environment. "It is evident that wealth managers share the view that the financial markets will operate under significantly different regulatory conditions in future," says Kevin Burke, head of distribution, Asia Pacific at Barclays Capital.

Capital protection continues to be the most common product strategy. Thematic investments dropped from the second most popular product strategy last year to sixth this year, reinforcing the continuing client trend towards simple and transparent products. The three most important product features for clients are considered to be issuer risk, capital protection and a short maturity. This is a significant shift in investor attitudes away from liquidity and growth, which have typically dominated over the past three years.

"Evidently, risk aversion is currently top of mind for investors, as demonstrated by the great importance they place on protecting their underlying capital, assessing issuer risk and short maturity products for investment flexibility," says Peter Hu, head of non-Japan Asia investor solutions at Barclays Capital. "This risk aversion is also reinforced by a shift towards increased use of structured deposits," he adds.

Wealth managers' recommendations for a balanced-risk investor portfolio have an increased weighting in cash products and bonds over last year's survey, at the expense of equities and commodities, which is in line with the trend towards capital protection. Looking ahead, a majority of respondents are expecting the allocation to non-Japan Asia equities within their balanced-risk portfolio to increase during the next six months.

The survey also shows that equity and FX remain the most popular asset classes for both flow and structured products. The use of equity has generally declined from last year as investors search for capital protection, and the use of structured products has declined across the board as investors search for simpler and more transparent products.