Asian investors keep it simple and transparent

The wealth management business in Asia appears to be more about differences than similarities, given the number of countries, their varying stages of economic development and the range of ways people like to invest their wealth.

However, there is a similar thread in the way many of the wealthy have been investing their money this year. That is: simple and transparent products with low leverage, and high diversification.

This is easy to understand, given the losses that many will have experienced in 2008, with plunging markets across the board.

Meanwhile, some would have suffered exacerbated losses from investing in structured products such as accumulators, which were popular in markets including Hong Kong. These can generate massive losses when stocks or currencies are falling.

Debashish Dutta Gupta, head of investments for Asia-Pacific wealth management at Citi Private Bank, says: "People have gone back to simpler products. Even when they're using structured products they're using simpler variants."

Marcel Kreis, head of private banking Asia Pacific at Credit Suisse, says clients do not want to buy structured products where the underlying asset will be affected by several markets.

In general, the wealthy in China, India and Hong Kong tend to favour equity-based investments, whether straight equity purchases or through structured products and notes, such as equity-linked notes.

Favouring fixed income

Among south-east Asian countries, investors tend to favour fixed income and foreign exchange, bankers say.

"A part of it is cultural history," says Citi's Dutta Gupta.

"In south-east Asia, people have grown up dealing with multiple currencies, whereas if you've lived in India or China all your life, you didn't have the chance because of capital controls."

There has also been more direct buying of equities, rather than using mutual funds, as well as significant inflows into exchange traded funds, bankers says.

Many people repatriated their wealth as the crisis unfolded.

Those who shifted that money into home stock markets would have seen welcome returns, with the surge in equities across the region, particularly in China and India, outperforming developed markets.

Kreis says: "Equity exposure in general started to increase in a much more pronounced fashion in the third quarter. Cash levels were at a record high last year and they weren't going to jump in April.

"There has been quite a bit of interest in both China and Hong Kong for equity exposure [both] IPOs and [the] secondary [market]."

Dutta Gupta says: "[Because] people perceived that Asia would do better in this crisis than the western world, they brought their money back home and invested it heavily.

"There's been a big shift from foreign equities and foreign assets to domestic assets and domestic equities."

Japan, Asia's largest market, is very different from the rest of the region.

The maturity of the economy means growth is much slower than in its Asian neighbours and its stock market has underperformed developing peers.

Also, its battle with deflation means many investors, from the wealthiest down, tend to hold the vast majority of their savings in deposits.

Industry sources say that just 4-5 per cent of the total pool of household wealth in Japan is invested outside the yen.

Japanese investors

Jean-Claude Humair, head of UBS wealth management Japan, says: "Japanese investors seem to be more patient and resilient in terms of performance and delivery, whereas elsewhere in Asia, investors can be less patient, taking profits and cutting losses more quickly."

On the other hand, like their mainland Asian peers, wealthy Japanese are also keen on more simple and transparent products, and are also looking for more direct investments in equity and fixed-income products.

Renewed confidence

Humair says: "This year there's been a surge of demand for fixed-income products. We've seen renewed confidence, with investors more open to riskier products.

"We have seen interest in alternative asset classes such as commodities and energy-related products and demand for structured products, with potential upside but limited downside."

Michael Viana, head of ultra high net worth clients at UBS wealth management Japan, says a lot of popular products have a home bias, such as products linked to the Nikkei products or specific Japanese companies.

"There is also demand for foreign-exchange related products in yen and other currencies," says Viana.

"You see demand for commodity or foreign-equity products, but — if you look at the overall pie — the majority of structured products are yen denominated."

— Financial Times