While Hong Kong and Singapore continue their inexorable marches towards the top of the international financial centre league, opinion is divided on the extent to which a new wave of Asian locations can become major players in the private banking space. Paul Golden reports.
Hong Kong and Singapore are the two highest peaks across Asia’s wealth management landscape, but could other countries, including Malaysia, Korea, Thailand and Indonesia rise to similar heights? At face value, it seems like that could be some years off, but recent rankings and research has made it a valid question.
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A recent report by the UK-based Centre for Economics and Business Research (CEBR) predicts that by 2015, the number of financial service jobs in Hong Kong will be greater than London, and the former British colony would have become the main international financial centre in the world. The report also forecasts that banking jobs in Singapore will have exceeded 75% of the total employed in London.
According to the Boston Consulting Group (BCG) report Global Wealth 2012: The Battle to Regain Strength, Hong Kong and Singapore are receiving a major boost from client assets flowing offshore from other Asian countries with underdeveloped private banking industries, with net new asset generation reaching 10% last year, compared to 7% in 2010.
The World Economic Forum (WEF) 2012 Financial Development Report suggests progress is also being made elsewhere in Asia. In terms of banking financial services, Malaysia was ranked 18th and Korea 20th – both ahead of the US. Thailand was ranked 28th, which places it above Italy.
In the WEF report, Neeltje van Horen of De Nederlandsche Bank refers to emerging market banks from Asia building a substantial presence outside their region, especially in countries with large migrant populations.
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By GlobalData"The wealth management industries in Indonesia and Thailand are expected to enlarge rapidly over the next five years as HNWI and UHNWI volumes in these countries grow to a level (1000+ UHNWIs) that would encourage international private banks to set up offices in these countries," says WealthInsight analyst Andrew Amoils.
"Despite strong projected HNWI growth in Vietnam and the Philippines, their low base means that it is unlikely that international banks will heavily move into these countries before 2020," adds Amoils.
Seoul position
CEBR economist Rob Harbron points to the 2012 Z/Yen Global Financial Competitiveness Index, which ranks Seoul sixth in the world (a jump of three places from 2011), to support his view that "there is definitely room for other Asian locations to become significant players in the financial services scene. Somewhere like Thailand still has a way to go, but we could definitely see it becoming more of a player down the line."
Nick Lambe, a private banking specialist recruiter at Morgan McKinley Hong Kong, is more sceptical. He thinks locations such as Korea are a long way short of achieving leading location status.
"There is room for emerging market locations to build up their presence in private wealth management, but the onshore and offshore markets are very different," he says.
"I would suspect that until those markets and the high net worth individuals in those locations have access to a sophisticated and broad-ranging product offering onshore, they will remain attracted to Hong Kong and Singapore for their wealth management."
A legislative environment where investing onshore makes commercial sense in terms of foreign exchange and tax rates is another prerequisite, adds Lambe.
"All the emerging markets and financial centres could potentially grow their wealth management business – specifically Malaysia, Thailand and Indonesia, as well as Korea. However, there needs to be a significant draw for high net worth individuals to invest in the local market."
Plenty of opportunity
Mario Bassi, MD and head of Asia at management consultants Solution Providers, says the sheer size and magnitude of financial transactions in Asia provides plenty of opportunity for other locations to become significant regional centres.
"Financial centres in mainland China such as Beijing and Shenzhen have the potential to break into the global top 10. There is still tremendous growth potential and it is inevitable that more Asian financial centres will rise in significance in the near future, especially with the ongoing instability in Western markets."
In addition to the factors mentioned above, Bassi refers to continued commitment to innovation as vital to the development of new financial centres.
"Innovation and advancement is often overlooked, but you just have to observe Singapore’s rapid rise in the finance world. Clear and sound efforts by the monetary authority and government, such as the private banking code of conduct, have leapfrogged Singapore to one of the top four global financial centres consistently within a matter of years," Bassi adds.
Banks less swayed by rising tigers
The leading private banks in Asia also differ in their views of potential of locations outside Hong Kong and Singapore. For example, Bernard Rennell, CEO North Asia, global private banking and global head of private wealth solutions at HSBC Private Bank, says wealth creation in north Asia will mean that Taiwan and Korea are likely to have strong domestic banking industries.
JP Morgan Private Wealth Management Asia CEO Peter Flavel warns that while these countries have large onshore revenue pools, many entrants fail to recognise that success is not assured simply by the size and growth of the market.
"Operating in an international platform, there is a place for a lot of different centres of excellence," states Shayne Nelson, CEO Standard Chartered Private Bank. "The key question is whether or not Taiwan or Korea can attract the new wealth being created.
Both have significant onshore wealth and are showing strong economic and wealth growth. There are, therefore, growth opportunities in the area of wealth management, although both remain much smaller financial centres than Hong Kong or Singapore."
Ravi Raju, head of Deutsche Bank private wealth management Asia Pacific says the growth in wealth management needs across Asia could encourage other cities or countries to develop their domestic private wealth management capabilities.
"The rate of wealth creation in Asia is taking place at a tremendous pace and there is room for multiple major banking centres, including new onshore centres," adds Didier von Daeniken, head of wealth management Asia Pacific, Barclays.
Ken Sue, head of products and services in Asia for Coutts, and Ranjit Khanna, the bank’s head of south Asia and global non-resident Indian business, observe that speculating on the future banking landscape is fraught with difficulty.
"In hindsight, banking centres usually result from the secular, long-term development in the economic growth of an individual country or region. It can depend on any number of factors, including general economic growth, infrastructural development and needs, modern financial markets, regulation, and softer, more intangible factors such as education, demographics, down to individual competency, a central location and/or language. That being said, we are confident that Singapore and Hong Kong have many of the necessary elements in place to remain pre-eminent in the region for the foreseeable future."
Hong Kong and Singapore headstart
Tan Su Shan, MD and group head of wealth management at DBS Bank, refers to several specific factors underpinning demand for wealth management services in Asia, including increased trade and demand for infrastructure investments, the rise of Asian corporates and growth of individual wealth.
"Investors worldwide are attracted by Asia’s economic growth prospects and are also looking to diversify their investment portfolios beyond the traditional markets of the US and Europe. As well-regulated and diversified international financial centres, Hong Kong and Singapore play natural roles in facilitating trade and investment in the region, Hong Kong for north Asia and Singapore for South-East Asia. Hence, both cities have a head start in terms of development as centres for private wealth management.
"Hong Kong has benefited greatly from the massive growth and maturity of the Chinese capital markets. Whether it is Chinese shares listed in Hong Kong or the growth of the offshore renminbi as a currency of choice, Hong Kong has benefited from strong momentum in wealth creation and the resulting demand for wealth management services."
In Singapore, the growth of the wealth management industry is underpinned by key fundamentals such as a strong rule of law, clear regulatory environment, sovereignty and political stability, as well as the wide availability of fund management expertise, particularly in the area of Asian investments.
"Singapore is also positioned as a centre for advisory excellence, with competent client advisors," continues Shan. "Many other Asian cities, especially those in China, Korea and Taiwan, have aspirations to be wealth management centres [but] these may be more onshore in nature with a focus on onshore products and services."
Singapore and Hong Kong will continue to flourish as the dominant and unparalleled banking centres in Asia over the coming years as they have an established international work force, strong corporate governance and well regulated financial services and capital markets frameworks, excellent legal and professional services and long histories in international trade, according to Hugues Delcourt, CEO private banking Asia, ABN Amro Bank.
"These two locations have also built strong global brand recognition as centres of excellence in supporting the growth of financial markets and their intermediaries in the region. At the same time though, Taiwan and Korea will continue to play an important role in Asia, largely due to the size of their fast-growing domestic markets and local demand for financial services that is increasing every day."
Growth drivers
Having strong assets nearby, in the form of domestic GDP growth, is a key factor for private banking activity growth in Asia as it is in Europe, explains Barnaby Nelson, head of client development Asia for BNP Paribas Securities Services.
"Indonesian and Malaysian money is driving growth in Singapore, for example, while Mainland Chinese are putting their money mainly into Hong Kong. Other countries and cities have to decide whether they want to be a private banking centre, which requires providing incentives, including training and infrastructure, for bankers."
The natural progression is not so much towards the emergence of other regional centres but rather the creation of domestic private banking centres, he suggests.
"I don’t see huge amounts of money flowing into Taiwan or Korea, but you might see wealthy Asians moving their money into jurisdictions where they feel they are free from political risk while not sending it too far; they want the nearest safe and stable jurisdiction for their money. I think there will be growth in onshore mass affluent assets, which would encourage growth in premium, rather than private, banking."
Korea is keen to grab a share of the growing Asian hedge fund market. But Nelson points out that from a domicile perspective, the problem for Korea is how it could improve on what is already there.
"How can a local Korean domicile be better than Cayman, British Virgin Islands or even UCITS? There are also relatively few indigenous Asian hedge funds. Every regulator in Asia is pursuing a domestic agenda and would love to have more domestically registered funds," he adds.
When asked whether the Taiwanese financial regulator’s decision to relax rules on local banks investing in China could be followed by a relaxation of restrictions on Chinese banks investing in Taiwan, he accepts that the local fund industry will become more integrated into that of China.
"Flows outwards from Taiwan are imminent with the launch of Renminbi Qualified Foreign Institutional Investor mechanism into China, and the next step may be a thawing of relations in the other direction so Chinese people could put their money in Taiwan, although that could be three to five years away," Nelson concludes.
The trend for greater wealth accumulation in Asia is clear. Whether this will lead to the rise of a second wave of Asian wealth management centres, beyond Singapore and Hong Kong, appears a little less clear.
Regulators in Malaysia, Korea, Thailand and Indonesia could do far worse than following the example of their larger regional cousins.
