Singapore-based clients are far keener on cash as an asset class than among those in Hong Kong and Switzerland, and citizens of the Asian city state are also more likely to hold gold.

Singapore-based clients are far keener on cash as an asset class than those in Hong Kong and Switzerland, and citizens of the Asian city state are also more likely to hold gold, according to a study by LGT, the Liechtenstein private banking group.

Meanwhile, observations from Standard Charted Private Bank show a different picture.

The LGT study found that clients from these three markets differ significantly in a number of ways, proving what many banks claim to already know and practice - private banking clients cannot be lumped together, but rather have their own individual requirements and expectations.

The survey looked at portfolio composition, attitudes to risk, expectations in terms of return, and advisory needs of private banking clients. WealthBriefingAsia also sought views from Mario Christoph Becker, senior director, head of investment advisory, Southeast Asia, at Standard Chartered Private Bank, which holds approximately $52 billion in assets under management.

Portfolio make-up

The LGT survey found the use of the different forms of investment is very similar in Switzerland and Hong Kong but Singapore shows a large contrast.

Compared with Switzerland and Hong Kong, a statistically significantly lower frequency of shares, bonds, and investment funds is apparent in Singapore. Also, Singapore, commodities/gold or precious metals is the third most frequent asset class, even ahead of bonds (which is the third most frequent in Switzerland and Hong Kong).

Private banking clients in Singapore currently invest around half of their assets in cash funds. In Hong Kong this share amounts to around one third, and around one quarter in Switzerland. Also, bonds are less popular with Asian investors than with Swiss investors, according to LGT.

The private banking arm of Standard Chartered, meanwhile, noted a different portfolio mix for Singapore – it said the allocation to gold and precious metals is much lower for its clients, coming in between 5 and 10 per cent. With regards to cash, while it plays a major role the firm said it is more in the range of 30 per cent; the bulk of the remaining assets are typically fixed interest.

According to LGT’s study, the popularity of shares varies in Asia - the proportion of assets (excluding cash) invested in shares is 61 per cent in Hong Kong but only 47 per cent in Singapore. In response to these figures, Standard Chartered said: “Chinese clients are generally more open to equities, hence the high allocation to equities in Hong Kong is also our observation; other Asian markets are less keen on equities and actually prefer to invest in fixed income, sometimes also utilising leverage.”

The bank added that most Asian high net-worth clients are underweight in equities but are now showing more interest: “We have also observed some clients shifting from bonds to stocks and there appears to be a consensus out there that “the great rotation from bonds to stocks” will happen in 2013.”

At LGT, the bank pointed out the lower investment percentage put into derivatives for Hong Kong, given that Hong Kong investors are known to be more risk-taking and also possess good knowledge in the derivatives market. In fact, the derivatives warrant market in Hong Kong has been consistently ranked among the top in the world in terms of market turnover. The lower percentage in derivatives probably reflects the fact that Hong Kong investors have a lower appetite for structured products since the 2008­2009 financial crisis and as a result of more stringent regulation imposed by its financial governing bodies, LGT said.

Diversification

LGT found that low diversification is common in Singapore: 67 per cent of its interviewees do not spread risk sufficiently, i.e. less than four asset classes. In Hong Kong this group accounts for 45 per cent, with its investments occupying an average of 3.5 different asset classes, similar to the situation observed in Switzerland.

The higher level of diversification is also an indication that Hong Kong investors have more investment knowledge in different financial instruments, so they invest in different asset classes, LGT said. It added that trends of low diversification in Singapore should be seen by wealth managers as “an opportunity to serve as a knowledge partner and win the trust of the Singaporean investor, to help him or her learn about the benefits of diversification.”

Standard Chartered argued that fewer asset classes does not necessarily mean less diversification. “For example, a portfolio of 50 per cent cash and 50 per cent equities could also be considered diversified from a risk management perspective. In terms of asset allocation, what we have observed is that real estate remains one of the preferred asset classes next to bonds, cash and equities.”

The bank continued: “The allocation to gold has also increased over the years, while allocation to hedge funds has been markedly reduced. For large clients, the asset allocation is often private equity via corporate assets, real estate, cash and bonds plus some equities. Depending on the quality of the various assets these are solid allocations, though strictly speaking its “only” five asset classes.”

Risk and knowledge

Hong Kong residents are more willing to take risks, with almost half of those questioned describing themselves as being comfortable with risk. On the other end of the spectrum, only 26 per cent of respondents from Singapore said the same, reflecting its culture of promoting “a safe and stable ethos”, according to the LGT study. (Switzerland 23 per cent).

Answering how investors rate their own knowledge of investment matters, LGT said 39 per cent of Swiss people have a good level of knowledge, 16 per cent even very good. In Singapore the values are similar. Hong Kong, on the other hand, showed that 30 per cent of those questioned believe that they have a very good level knowledge.

Expectations and relationships

Clients in Asia appear to be more satisfied with regards to returns on investment, LGT’s survey said. However, varying results were presented in terms of expectations to outperform the market - 19 per cent of those surveyed in Hong Kong (16 per cent in Switzerland) aimed to achieve this, compared to only 5 per cent of those based in Singapore.

The LGT survey found clients in Hong Kong and Singapore seem to have significantly less of a bond with their relationship managers than in Switzerland.

Similar to Standard Chartered’s observations, the proportion of investors who make their own investment decisions (without a consultant) is the highest in Hong Kong at 55 per cent, compared to 33 per cent in Singapore, according to LGT.

According to the LGT study’s authors, the challenge is to personalise the impersonal nature of private banking in Asia. In Switzerland only some 5 per cent of clients state that they would definitely follow their relationship manager and 17per cent would probably follow them. The numbers are very similar for Hong Kong. However, a completely different picture emerges in Singapore, where loyalty to the relationship manager is considerably lower: only 1 per cent would certainly follow their relationship manager and 5 per cent would probably go with him. 60 per cent of those surveyed in Singapore were quite forthright in saying that they would “certainly not” follow their relationship manager, LGT said.

Standard Chartered is observing a similar trend and said: “We’re now seeing that when relationship managers are moving across to the different platforms of different private banks, the clients aren’t necessarily following them anymore. That’s because too many of them are moving far too often.”

No clichés

Despite all the trends toward globalisation, the LGT study shows that, when it comes to money matters, the principle that investors are all the same does not apply. The authors also noted that the often used term “Asian market” is insufficient and does not cover the variety of attitudes and behaviour in the different Asian countries. While the data obtained by LGT reveals many differences between the two financial centres of Hong Kong and Singapore and Europe's Switzerland, it equally does so between the two Asian countries, illustrating notable variations in preferences and attitudes.

A total of 515 people were surveyed (155 in Switzerland and 180 in both Hong Kong and Singapore) in autumn last year. The key criterion for participating in the survey was a minimum amount of available assets: in Switzerland more than CHF 900 000 excluding real estate, in Hong Kong and Singapore more than $1 million including real estate, provided that this was not used as the first or second home.