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UBS looking past turmoil says China remains key to expansion
[SINGAPORE] UBS Group AG's new Asia head said she's looking past the turmoil roiling China's markets in the past six months and expects the country to be a key engine for growth for decades to come.
Kathryn Shih, who became regional president this month, acknowledged that the volatility that's been sparked by China's slowing growth and its weakening currency will persist.
Even so, UBS will keep adding employees on the mainland as it expands in the three core areas of wealth management, investment banking and asset management, she said without giving numbers.
"Volatility will stay with us this year, it's going to be a challenging year for us," Ms Shih said in a Jan 5 interview in Singapore, two days before slumping stocks on the mainland triggered circuit breakers for a second time this week.
Still, "UBS is putting a real stake in China because we really believe that this is where in the next 20-30 years the growth is going to come from."
The country's market selloff this week has twice triggered circuit breakers as stocks hit the daily limit for declines.
On Thursday, authorities abandoned that system. China's efforts to prop up its securities markets have only served to worsen investor sentiment, and the resulting convulsions have spread into global equities. The MSCI World Index is down 5 per cent this week.
China's benchmark Shanghai Composite Index gained 0.3 per cent on Friday as of 9.45am local time, paring its slump this week to 11 per cent.
China's importance in Asia - the number of millionaires there topped 1 million in 2014, according to Bain & Co. - means UBS isn't backing away from its expansion there, said Ms Shih, who ran wealth management in the region for 13 years before her promotion.
The Zurich-based firm invested about US$2.5 billion in Postal Savings Bank of China Co late last year, people with knowledge of the matter have said, ahead of a potential initial public offering that could come this year.
"Being onshore, especially in China, is very important," Ms Shih, 57, said.
In 2006, UBS became the first foreign firm allowed to invest directly into a fully licensed Chinese securities business, giving it a lead over rivals including Morgan Stanley and JPMorgan Chase & Co.
Ms Shih aims to use that venture and the firm's other onshore businesses to benefit from some of the 700 initial public offerings she expects to be launched on the mainland and to win a bigger slice of the US$19.8 trillion of assets that Bain estimates are held by wealthy Chinese.
Financial firms have been rocked by a roller-coaster ride in Chinese markets in the past year, with mainland stocks soaring in the first half of 2015 before reversing so sharply that authorities intervened with support measures and investigations.
"So for investors it's important to be diversified, not to be always in one pool," mS Shih said. It's also important for us to be able to tap the domestic market. The reason being the largest pool of money is onshore, that's where a lot of the wealth resources are."
The British national became UBS's first female president of the region when she replaced Chi-Won Yoon at the start of the year.
Ms Shih ran the bank's wealth division in Asia from 2002 through last year, overseeing a quadrupling in assets under management to US$257 billion. The firm has more than 1,100 client advisers in the Asia Pacific, though doesn't disclose country- specific numbers. It had 7,394 employees in the region as of September, according to its quarterly report.
In China, the bank operates the UBS (China) Ltd division, which is a wholly owned subsidiary focused on wealth management that started in July 2012. UBS doesn't disclose the amount of assets the business manages.
"It's not a big business, we are still building it up," Ms Shih said. "But the potential is there. It's a huge market there."
Millionaire wealth in China is expected to climb by an average of about 12 per cent a year to US$8.25 trillion by 2020, according to research by Julius Baer Group Ltd, one of a number of UBS rivals that are also seeking to expand in the Asian country. Julius Baer last month agreed to buy a 5 per cent stake in a Shanghai-based provider of financial services. Credit Suisse told investors in October it will look at increasing its presence in China.
Ms Shih also aims to capitalise on the firm's UBS Securities Co venture, which is licensed for onshore broking, trading and advisory operations, to win more IPO work as Chinese regulators loosen the reins on public share sales and after lawmakers cleared the way for the introduction of a registration-based system that may expedite the listing process.
UBS owns a 25 per cent stake in the venture, with the rest held by four state-owned enterprises including Beijing Guoxiang Asset Management Co. The bank is willing to increase its stake in UBS Securities when it's allowed to, Ms Shih said, adding that the firm still appreciates "the presence of a local partner in the venture."
Last year, UBS ranked fourth among managers of the 157 billion yuan of IPOs on the mainland with a market share of 6.5 per cent, data compiled by Bloomberg show. The Swiss firm was the only foreign bank among the top 10 arrangers.
UBS will pitch its investment-banking capabilities to affluent Chinese clients in order to bolster its onshore wealth business, Ms Shih said, adding that most of the rich in China are very involved in the running of their businesses.
"They want to see how they can use their private wealth to enhance their corporate wealth and vice versa," Ms Shih said. "The thing they are most passionate about is their business. That's why it's such a powerful combination when you can be their wealth manager as well as their investment banker."