Wealthy Asians like risk, but picky on assets

Last Updated: Thu, Oct 07, 2010 10:01 hrs

Riding on the economic rebound in their region, Asia's swelling ranks of wealthy have more risk appetite than Western millionaires, who are sticking to cash and gold after the downturn -- their equivalent of putting money under the mattress.

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But private bankers participating at the Reuters Global Private Banking Summit said there is no one-size-fits-all kind of investment strategy among Asia's millionaires, who grew to 3 million in number in 2009, equalling Europe.

While the Asian wealthy were more likely to take a punt on higher-yielding investments, the mindset of a Chinese multi-millionaire could be quite different to his Indian counterpart.

"The natural bias of a Chinese investor would be towards equities, whereas an Indian high net worth individual would be more on bonds," said Francois Monnet, head of a Credit Suisse unit that serves Asia's super rich.

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"The Chinese high-networth individuals are likely to be first generation wealthy, very risk-tolerant and street-smart as opposed to being book-smart like the Indians, who are likely to be second or third-generation wealthy.

"The second and third generation would be more risk averse, more into capital preservation than capital growth."

Nevertheless, the average Asian millionaire's portfolio -- cash and equivalent around 25 percent, 35 percent equities, 20 percent bonds, 4-5 percent in hedge funds and alternative investments and the rest in real estate -- is seen as more adventurous than those of American and European counterparts.

"Asian clients tend to trade a lot more aggressively than their European counterparts," said Tan Sing Hwee, Asia-Pacific chief investment officer at Societe Generale's private bank. "The European client is more portfolio-focused. Asian clients have always been more individual product-driven."

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According to Capgemini-Merrill Lynch's Asia-Pacific Wealth Report published last month, Asian millionaires hold fewer fixed-income securities partly because Asian bond markets were less developed than in the West.

Chinese investors tended to favor structured products packaged around fixed income rather than directly investing in fixed-income securities, the report said.


Josef Stadler, who heads the UBS private banking business for clients with over $50 million in investable assets, said his European clients were holding 30 to 35 percent of their disposable wealth in cash.

"We have seen a clear shift from alternatives into cash. I don't mean treasury bills, I mean cash, cash, cash," he told the Reuters Summit in Geneva.

Macquarie Group's private bank is also seeing a similar trend in Australia.

"In my 25 years in the industry, I have never seen this much cash sitting in the sidelines," Guy Hedley, the head of the business, said. Hedley said that would change in 2010/2011.

Private bankers in the United States are warning their wealthy clients to brace for higher taxes next year and consider taking capital gains and making gifts now.

In areas like Latin America and Spain, the wealthy are overweight in domestic or regional assets, preferring to stick closer to home, other private bankers said.

"The last three years has made people question a lot more what is in the box," Nick Pollard, RBS Coutts' Asia chief executive, said from Hong Kong.

"When you get an issue like what happened in Europe over the summer, that knocks confidence ... again and that's why I think it's taking us a little longer to come out of the crisis."

But Asian clients were seemingly more bullish, he said, although they too were holding historically high levels of cash and equivalent deposits, at between 10 and 20 percent of total assets.

Asians also had less of a home bias, said Credit Suisse's Monnet.

"They see sovereign risk in Asia that has to be diversified through global investing," he said. "On one hand they do not have the maturity compared to Western countries, on the other hand they are more global, in terms of understanding diversification."

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