Private banking investors in Asia nudge towards longer terms

Changes in global markets will dictate the development of private banking in Asia, according to speakers on a panel at the 2nd Annual Asia Structured Products and Derivatives Conference in Hong Kong on September 22. “The fact that the US Federal Reserve didn’t increase interest rates adds uncertainty to the market, so investors mostly adopt a wait-and-see attitude and the transaction levels are slack,” said Rajesh Manwani, head of assets & investments Asia Pacific at Credit Suisse Private Banking & Wealth Management.

The third quarter has been “sleepy; all asset classes are pricing pretty cheap at the moment, [but] investors are hesitating to invest as they need to feel momentum,” said Irene Chen (pictured), head of structured products, Asia, Middle East, and Africa (Amea) at Barclays Wealth.

Sentiment has been damaged at the same time as volatility has increased, which has raised yields. “The pricing looks better, but clients are not investing more than before,” said Sebastien Dupuy, head of product solutions at DBS Bank. “Even before the market collapsed, not that many investors were looking into the Shanghai Hong Kong Stock Connect programme, because Hong Kong investors don’t know about A-shares.”

Investments linked to A-shares will gain traction as the price difference in the valuation of the same company in the two markets remains attractive, said Dupuy.

Investors lack knowledge further afield, said Chen. “The key [elements] for clients to get to know more about investing in the European market are education and marketing, as we really think heavily of clients’ suitability and aim to make sure they understand the products,” said Chen. Middle East clients, for instance, are more familiar with European blue chip shares and indices and therefore they are more likely to subscribe to products with European themes and longer tenors, said Chen.

“After the recent crash in China’s stockmarket investors should be aware of the need for diversification,” said Dupuy. “Those invested in China and Hong Kong have already suffered.”

One of the challenges with private banking investors in the region is to get them to know European providers active in the market, said Roger Meier, head of structured products Asia at Julius Baer. “Most of them know the big names only,” said Meier.

There has been a pick-up in products linked to baskets of two US blue chip shares with 90% capital protection, rather than full protection, according to Dupuy,

Complexity remains an issue. “There’s a demand for standardised structured products, as clients would like to pursue a product that is easy to understand,” said Chen. Investors have less time and are less patient with listening to their advisers explaining complicated products “especially if we need to explain one single feature for 30 minutes”, said Chen.

Private banking investors in Asia Pacific favour short-term investments, which may be explained by the existence of an active “secondary market for structured products”, said Meier. However, Meier expects more investors to turn to products with longer tenors after they were hit by the latest stockmarket crash, especially if there is an adequate level of volatility which would translate into good yields. “We are seeing a pick-up in the subscription of one-year products,” said Meier.

As far as product choice, “there is no point in buying an accumulator or an equity-linked note in a bullish market, as direct investment in stock can bring a higher return than a structured product, but it will be a different story when the market falls,” said Dupuy.

While platforms provide a “nice tool” and “free up resources”, Dupuy expressed concerns about relationship managers pricing structures all day instead of getting in touch with clients. “We are more interested in what we can provide to the clients than simplifying the pricing process.”

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Private banking investors in Asia nudge towards longer terms