In addition to providing diversification for private portfolio investors, emerging economies are a fast-growing source of opportunities for wealth managers.
According to the 2021 edition of Credit Suisse’s Global Wealth Report, between 2000-19 emerging economies’ share of the world’s wealth more than tripled, to 30% from 9%. This dipped to 29% in 2020. But the report forecasts that emerging economies will account for almost 42% of the increase in household wealth by 2025. No wealth manager can afford to overlook this.
Emerging market specialists shared their views on in-bound and out-bound opportunities in their regions with OMFIF’s deputy chief executive officer, Clive Horwood.
KEY SESSION HIGHLIGHTS
- Although emerging stock and bond markets are perceived as being especially vulnerable to the impact of rising US rates, the fundamental case for investment in these markets remains sound. Manish Singh, chief investment officer at Crossbridge Capital, observed that the weight of emerging markets in the MSCI All World Index is just 12%. Their share of global gross domestic product is 45%, implying that the growth potential for emerging market equities is compelling.
- Singh was relaxed about the risk of inflation. ‘I’m not a believer in inflation,’ he said. While he conceded that this was a contrarian view, given recent consumer price index numbers in the US and Europe, he based his confidence on historical data suggesting that inflationary spikes are short lived. He believed that technology and a low global birth rate will combine to keep inflation subdued over the longer term.
- Singh recommended that investors prepared to adopt a long term perspective should explore the potential of private rather than public markets. ‘These are five-to-10-year investments, so they’re not going to be part of your liquid portfolio,’ he said. ‘Nobody is better placed to advise on this than guys on the ground who are talking to entrepreneurs and making investments locally.’
- Private bankers said that ultra-high-net-worth individuals based in some of the world’s more vibrant emerging markets are increasingly attuned to the importance of succession planning. Grant Parkinson, head of consumer, private and business banking for Europe at Standard Chartered, said that this is reflected in the growing number of the bank’s clients who are putting new governance structures in place to protect their wealth.
- Victor Wang, Europe, Middle East and Africa head of Asia coverage and connectivity at HSBC Private Banking, observed that diversification is another increasingly conspicuous feature of first generation UHNWIs’ planning. ‘One of the reasons first generation entrepreneurs have accumulated so much wealth is that they are risk takers,’ he said. ‘They want to carry on controlling their business, but we’re seeing many more clients allocating more of their wealth outside their own business.’
- The requirements of HNWIs varies from one emerging region to the next. For example, Parkinson reported that some of his clients expect a custodial service rather than discretionary portfolio management from their wealth managers.
- Alexandre Gartner, private bank head at Banco Bradesco Europa, suggested that Brazil-based investors generally need more guidance from their wealth managers. For them, overseas diversification is essential, given that their local market accounts for only about 1% of the world’s investable assets. But with Brazilian government bonds, which are perceived to be risk-free, offering double-digit yields, local HNWIs need guidance on risk-reward dynamics in developed markets.
- Bankers on the panel said that another feature of the wealth management industry in some emerging markets is a frequent overlap between private and commercial banking. Gartner said that relationships originally initiated in areas such as lending and insurance often evolve naturally into wealth management mandates. Wang said that HSBC had had a similar experience in Asia: ‘We leverage on referrals from the commercial banking side,’ he said. ‘Our colleagues are happy to provide those credentials because we share the same objectives, implement similar strategies and ultimately celebrate the same success.’
Private Bank Head
Head of Consumer
Private and Business Banking for Europe
Chief Investment Officer
EMEA Head of Asia Coverage and Connectivity
HSBC Private Banking