July 2014

International Equities the New Favourite
Equities are back in vogue, particularly if they are international equities outside of the Asian investors’ home market.

Fuelled by a bull run in stock markets and unprecedented wealth creation, Asian High Net-Worth Individuals (HNWI) have seen strong growth in wealth over the past five years, having captured unprecedented opportunities from favourable economic conditions.

East & Partners Asian Wealth Management research program interviews 1,000 High Net-Worth Individuals from 10 markets – ex-Japan - on their current and forecast asset allocation.

The third instalment of the research program, developed to track investment behaviour and intentions of the HNWI segment in Asia, shows that over the last 12 months their investable wealth – outside of the family home – has increased 18 percent to a mean of US$4.98 million.

The forecast suggests it will increase another 15 percent in the next 12 months to go above US$5 million.

The research into investable asset allocation showed that the overall proportion of assets allocated to equities has been rising, from a total allocation of 42 percent a year ago to 44 percent today.

In terms of equities, the data reveals that non-domestic are in favour over domestic equities, with allocation into this asset class rising from 18 percent to 22 percent in just under 12 months, a 20 percent increment.

Non-domestic allocation has surpassed the predicted allocation of 21 percent, and is expected further increase to 25 percent of total investable wealth, 5 percent more than allocation for domestic equities.
This suggests that Asian HNWIs are increasingly looking to invest beyond their domestic markets; seeking out differentiated products that have higher potential yields and stability.

The results show that allocation for domestic equities will decrease and plateau at around 20 percent in the coming year, while investment properties look likely to stabilize to take a 35 percent allocation.

Notably, the growth in non-domestic equities comes off a reduction in property and fixed income allocations.

Fixed income is typically seen as a critical component of a diversified investment portfolio.

Yet, the report showed that allocations to fixed asset were trimmed to 10 percent in 2014. Perhaps that as the global economy continues to recover, Asian investors are starting to have concerns that rise in base interest rates will be detrimental to their fixed income portfolios.

Going forward, fierce competition for allocated wealth will be expected among conventional asset types. Investors are expected to move up the risk curve in 2014 as they seek out yield, looking for value in niche areas instead of the mainstream.

Currently, private banking penetration in these HNW assets is estimated at around 15 to 25 percent – suggesting significant room for growth in Asia.

With more people in Asia moving into the HNW category, the Private banking Industry is well placed to service this growing wealth.
Asset Allocation
% of Total

Source: Asian Wealth Management Index – May 2014

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