Asia is the epicentre of global wealth growth, which means the need for financial services is on the rise. Nowhere is this more apparent than in China.
Global players such as Blackrock, Goldman Sachs and Amundi have all taken the joint venture route, as banking groups HSBC and Citi look to expand their operations.
According to a recent Boston Consulting Group report, China will overtake the US as the country with the largest concentration of ultra-high net worth (UHNW) individuals by the end of the decade.
If investable wealth in China keeps rising at the current rate of 13% per annum, the country will have around $10.4trn (£7.5trn, €8.8trn) in “ultra-assets” by 2029.
Nigel Green, chief executive of DeVere Group, said: “The growing size, influence and wealth of China’s middle class is without question the main driver of demand for the wealth management sector.”
Oliver Wickham, head of business for Hong Kong at SJP, added: “China has been on the radar for many of the world’s leading wealth managers for a long time but we’re now only seeing this interest manifest into tangible action as the country continues to liberalise and open up its domestic market.
“China’s strong economic fundamentals, rapid technological advancement, fast-growing middle-class and population of 1.4 billion people – represent key growth opportunities for many financial institutions worldwide and there is expected to be further inflows of overseas investments looking to capitalise on this attractive market.”
Open up
Aside from the growing wealth in China, the government has become more liberal and decided to open up its financial sector to the wider world.
This has given the wealth management sector a platform for huge growth potential.
Green added: “The easing of restrictions on foreign-owned firms has helped develop the sector in China and given citizens more choice and opportunities from a wider market.
“We can expect domestic companies to be forced to become more competitive, which will benefit clients and make the industry itself more robust.”
Wickham added: “The first and most important step in the process of China opening up its financial sector is that it sends a positive message globally about liberalising ownership in a once tightly-regulated, large but closed-off market. The wealth management market has reciprocated in kind, responding positively and now there is more financial expertise, growth and foreign investment than ever entering the Chinese market, at a much quicker pace.
“This is good for both wealth managers who now are able to tap into the market but also for consumers in China, who enjoy greater investment opportunities, international accessibility and choice.”
Hong Kong Connect programme
In early February 2021, financial authorities in mainland China, Hong Kong and Macao jointly signed a memorandum of onderstanding on the upcoming launch of the Wealth Management Connect (WMC) pilot scheme in the Guangdong-Hong Kong-Macau Greater Bay Area.
It will allow residents of Hong Kong, Macau and major Guangdong cities to invest across borders. The establishment of the scheme was part of a policy blueprint for the development of financial markets in the Greater Bay Area.
The connect programme will bolster Hong Kong’s wealth sector, but it can be a big help for China too.
SJP’s Wickham said: “The Wealth Management Connect firstly offers a chance for both Hong Kong and China to re-establish themselves as pre-eminent global financial hubs, following a volatile couple of years with trade wars, civil unrest and a pandemic.
“The programme will offer greater access to China from Hong Kong-based investors and likewise will also enable mainland purchases of Hong Kong assets under certain conditions.
“This will lead to stronger growth in stable, low-risk assets such as bonds and mutual funds.”
DeVere’s Green said: “It deepened the connection to Hong Kong and therefore it allows the Chinese wealth sector an important extra degree of internalisation. “
Expats
As China begins its wealth expansion push, domestic investors will be the main targets.
But the country is starting to open up to the world, so the number of expats in China could increase as well.
Green said: “Business in the country will grow in tandem with the growth of the middle class. We can expect an influx of expats – who bring with them experience, expertise and capital – as the economy continues to expand post-pandemic, increases its global influence and becomes more open.”
Wickham added: “Business is expected to grow and many of the international banks are planning to add more wealth managers in Asia to capture this growth.
“The expatriate market is always an important consideration for wealth managers in the region, but increasingly, the focus has also shifted slightly towards catering towards local affluent and high net worth individuals, particular in younger generations, who are becoming more affluent, internationalised and now with greater disposable incomes.”
Offering
But does that mean firms need to come to market with an entirely new suite of products?
Wickham said: “Broadly speaking, given the interconnectivity between Hong Kong and China, and the wealth management joint ventures and partnerships that currently exist, there already a lot of options available for Chinese investors.
“However, there is also the matter of Chinese capital controls, which have so far restricted significant investment outflows out of the country.
“These regulations can deter investors, especially foreigners or those with international affiliations, from taking up more investment products in fear over whether they will have the same degree of accessibility from China.”
Green said: “There can always be more investment products as client expectations, the market and regulatory landscapes evolve. Therefore, products need to evolve to meet these shifts.”
Future
China is on its way to challenge the US as the biggest financial market in the world, meaning Hong Kong and Singapore will have to make room for another Asian financial centre.
Wickham added: “The future of Chinese wealth management is very bright, with the industry gaining more global influence every day. If the Chinese market can maintain the momentum for its liberalisation agenda and continue to attract foreign investment into its wealth management sector, it will be positioned well for great success.
“China also has, in contrast to Hong Kong or Singapore, scale on an unprecedented level. For context, there are over four million millionaires in China, around 10% of the world’s millionaires live in China, the second largest group after the US, compared to 200,000 in Singapore, and at China’s continuing growth rate, this figure will only increase exponentially.”
