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VIRUS OUTBREAK

Asia's private banks continue to report strong trading volumes

Wealthy Asians are - for now - not overly spooked by ongoing pandemic

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In the first two months of 2020, Bank of Singapore said its cash equities trading volume in Asia jumped 86% year-on-year.

Singapore

AMID market routs over mounting fears of Covid-19's impact on economic and business growth, private banks in the region are still reporting healthy trading volumes.

This suggests that wealthy Asians are - for now - not overly spooked by the recently declared pandemic, underscored by strong trading activity in February.

It has since got worse in March, with markets falling into bear territory on account of soaring virus infections outside of Asia and US President Donald Trump's ban on air travel between the United States and most of Europe for 30 days.

Still, deputy global head of DBS Private Bank Joseph Poon told The Business Times that trading volumes have "remained strong", adding that trading has been "orderly" and there has been no "undue panic" just yet.

"Clients haven't been overly spooked from the market's swoon so far. The rise in implied volatility has created the opportunity for us to create interesting structured investments aimed at offering enhanced levels of protection or performance when markets normalise," said Mr Poon, adding that DBS has recorded an overall uptick in private banking trading volumes in 2020.

Mr Poon is of the view that private investors have the capacity to bear risk for a longer period - compared with their institutional peers - in times of market turmoil.

"Institutions are commonly subject to mark-to-market pressures, as they have to adhere to strict benchmarks and regular reporting requirements. In contrast, private clients are unconstrained and tend to take a more measured and long-term view, and hold their positions until stability returns," he explained.

Didier von Daeniken, Standard Chartered global head of private banking and wealth management, told BT the bank has seen "sustained" trading flows amid global panic.

"With increased market volatility, structured products and derivatives have become really interesting for our clients now," Mr von Daeniken said in an interview, noting that StanChart has received a "significant volume" of enquiries on equities and equity derivatives in recent weeks.

Other banks are reporting a rollback in risk appetite in the coming weeks.

In the first two months of 2020, OCBC's Bank of Singapore said its cash equities trading volume in Asia jumped 86 per cent year-on-year. Over the same period, notional trading in derivatives more than doubled.

But the private bank's global head of products Marc Van de Walle believes that growth is likely to taper off as global infections continue to climb. "Clients have not seen a sell-off of this quantum and velocity in 11 years. For the younger investors, they have never experienced a crisis of this magnitude in their investing career. Many have only known a liquidity-driven buy-the-dip paradigm."

Mr Van de Walle added: "We expect this to come as a shock to many, and risk appetites are probably going to be muted for the next few weeks if not months," noting that the outlook is "challenging" in the private banking space.

"When sentiments improve, we expect that clients' appetite for risk will return, albeit hesitantly," he felt.

StanChart's Mr von Daeniken said that while the private banking unit had maintained its double-digit growth trajectory in January and February, the next few months will be "very difficult" to forecast.

Other private banks such as Morgan Stanley and Citi have declined to comment on their private banking flows.

Most private banks that BT spoke to hold a positive medium-term outlook, with expectations that the pandemic will subside by mid-2020.

"We expect that the outbreak can be contained, and economic and market headwinds with additional monetary and fiscal support should fade in the second quarter," said Patricia Quek, UBS wealth management sector head for Singapore.

DBS is expecting "normalcy to resume in due course", said Mr Poon, adding that Covid-19's economic and financial markets impact is "unlikely to be permanent".