Singapore has become a hub for private equity in Asia.
Raslan Rahman | AFP | Getty Images
A new survey by Swiss private bank Lombard Odier shows that ultra-wealthy investors in the Asia-Pacific region are moving away from the “wait and see” approach they adopted at the start of the pandemic as concerns emerge about market volatility.
The survey of 450 wealthy investors in the region – defined as holding at least $1 million in investable assets residing in the Asia Pacific region – revealed their main concerns.
It included how to manage current market volatility and geopolitical risks, as well as how to better diversify its portfolio to mitigate these risks, according to the 2022 HNW Study of Individuals (HNWIs).
Lombard Odier said the urgency of these strategies has increased since the survey in 2020.
“During the height of the novel coronavirus outbreak in 2020, the majority of Asia Pacific HNWIs surveyed did not change the characteristics of their portfolio and were adopting a ‘wait and see’ approach,” said Jean-Jean, Head of High Net Worth Individuals Showing Asia at Lombard Odier. Abu Bakr.
“This was mainly due to a lack of understanding of the risks involved and uncertainty about how the pandemic will evolve.”
Now, about 68% of investors in Singapore, Hong Kong, Japan, Thailand, the Philippines, Indonesia, Taiwan and Australia have either reorganized or changed their portfolios to better match current market conditions.
About 77% of those surveyed said rising inflation and the prospect of a recession were the most worrying. Singaporeans were the most concerned about this case.
“Even Japan, where inflation has been near zero for more than three decades, is now facing inflationary pressures, and 69% of Japan’s wealthy are concerned about this,” the report said.
“It is still not clear if the Bank of Japan will take a tightening move, but a third of Japan’s wealthy believe it will happen in the next 12 months.”
The survey showed that wealthy investors in the region are generally less concerned about potential interest rate hikes, mainly because they believe that most governments would be wise not to raise rates to the extent that it could hurt economic growth.
However, Australian and Indonesian investors are not so sure. The majority of those surveyed in those countries, about 70%, say high interest rates are a “big concern”.
Investors in the Philippines are most concerned with geopolitical instability, while Those in Hong Kong and Singapore also cited geopolitical tensions as one of the biggest risks in the next 12 months.
These investors are concerned about the impact of risks and geopolitical conflicts on the returns of their investments, with many expecting lower returns in the future. They also worry that they may miss out on opportunities during this time of volatility.
Many in Hong Kong and Japan questioned the effectiveness of their current diversification strategies given how the current environment of “low stock prices, widening credit spreads, and high long-term interest rates” has negatively impacted their portfolios.
In an effort to mitigate these risks, two things happened.
The survey found that wealthy investors in the Asia Pacific region are becoming more conservative, shifting more traditional asset classes – such as stocks and bonds – towards investing in their own companies.
Many also invested money in “safer” assets such as cash and gold. Some also invest in private assets including private equity, private debt, real estate and infrastructure investments, with investors in Singapore and Australia leading the way.
In addition, many investors have moved away from their home markets in the past two years. The report found that to manage post-Covid uncertainty, the result was a more global mix in their portfolios, and Japanese and Indonesian investors are actively doing so.
“Even if the impact of Covid-19 is global, there are big differences in stock returns in different countries, and some asset classes are underrepresented in some markets,” said Aboubacar of Lombard Odier.
“These investors are sophisticated, and understand the importance of a long-term approach to looking for assets outside their home markets, while reducing their reliance on local factors.”