HSBC wealth management capitalises on funds participation

A bank survey of Hong Kong retail investors shows they are keen to seek higher returns.
HSBCÆs wealth management division is keen to take advantage of what it sees as a growing risk appetite among Hong Kong retail investors. The bank has recently surveyed 1,400 retail investors in the territory and found that in 2005, stories such as Bric and emerging-market funds convinced more investors to seek higher returns.

These results include the second quarter of 2006, when the May/June market correction was underway, so Bruno Lee, the bankÆs new head of wealth management for Asia Pacific, believes the findings should remain largely intact. He also notes that last yearÆs growth was also achieved despite headwinds such as rising interest rates and geopolitical turbulence.

Lee, who joined the bank in April after heading InvescoÆs business development in Taiwan, says the total number of fund investors hasnÆt changed, but that the average transaction size has grown nearly 20%, from HK$459,000 in early 2005 to HK$547,000 at the start of 2006. And they have dialled up the risk: the portion of retail investors going into high-risk funds rose from 12% to 16%, while 67% of investors use moderate-risk funds and the number of investors using capital-protected funds fell from 26% to 17%.

Moreover, Lee says there has been an obvious increase in use of funds over the past year, versus stocks. Unit trusts accounted for 45% of the total retail universe in Hong Kong, up from 37% a year ago, thanks to the popularity of regular savings plans and the attractiveness of emerging-market stories. But the biggest reason may be the Mandatory Provident Fund, where returns are now attractive.

ôThis change means that investment advice is more important than price,ö Lee argues.

But the overall number of investors û in funds or stocks û is about the same, with another 3.4 million depositors on the sidelines.

His role at the bank is to ensure the front-line staff as well as the customers are able to make informed investment decisions. He says this is a mission already familiar to fund management companies but still new to most banks. Most retail investors, however, faced with so much choice, have tended to rely on bank staff for cues. The effort now is to give them enough information to be able to choose products on their own.

ôIf the strategy is just about execution, you get these swings into guaranteed funds or hot sectors, at the expense of core allocations like long-only global equities,ö Lee says. ôAnd thatÆs because distributors havenÆt educated their customers. We want to reverse retail behaviour so that investors know to diversify out of the hot products or load up on equities when prices are low.ö

In terms of products going forward, Lee notes that, firstly, HSBC expects retail investors to put even more money into red chips and H shares. The bank predicts China stocks will grow from 48% of investorsÆ portfolios to 64% over the next six months.

Secondly, Lee thinks that investors can increase their exposure to structured products, which still account for only 3% of retail investorsÆ total portfolio (not including guaranteed funds û which are funds, not notes). HSBCÆs survey reveals that nearly half of respondents didnÆt consider structured products because they didnÆt know anything about them.
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