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Despite heightened anxieties, private banking business in good shape

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August Hatecke: ''We recommend investors maintain a diversified investment portfolio. Stick to your investment plan - which for us means staying overweight on global and Asia ex-Japan equities.''

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Benjamin Cavalli: "We have two thematic areas of focus - China property and Asia's New Economy. These are meant to be relevant for the 6-24 month time frame."

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Sim S. Lim: ''We reiterate our Barbell Strategy on building portfolio resilience - a two-pronged approach comprising income-generating assets, and stocks that benefit from long-term secular growth trends.''

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Vinay Gandhi: ''Despite market uncertainty, we continue to expect greater demand for private equity and real estate investments.''

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Arnaud Tellier: ''We foresee even better take-up of green and social impact investment opportunities. We understand our growth must be sustainable to ensure the long-term best interests of our clients are realised.''

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Philip Kunz: ''We adopt a multi-faceted investment strategy to build resilient and globally diversified portfolios to manage the challenges of slow growth, low income and global uncertainties.''

Roundtable participants

  • August Hatecke, UBS Global Wealth Management, Co-Head Wealth Management Asia Pacific
  • Benjamin Cavalli, Credit Suisse Head of Private Banking South Asia and CEO Singapore
  • Sim S. Lim, DBS Bank, Group Head of Wealth Management and Consumer Banking
  • Vinay Gandhi, Bank J. Safra Sarasin, Chief Executive Officer, Singapore
  • Arnaud Tellier, BNP Paribas Wealth Management, CEO, Asia Pacific
  • Philip Kunz, HSBC Head of Global Private Banking, Southeast Asia, HSBC Private Banking

Moderator: Siow Li Sen, The Business Times


ASIA'S private banking business is in good shape as the sector continues to attract more clients and assets despite challenging times. Last year was tough, not least because of the unrest in Hong Kong, a major regional financial centre. The situation in early 2020 has deteriorated with the deadly outbreak of the novel coronavirus which will hit China hard, the world's second largest economy. Still, private bankers remain sanguine. They tell The Business Times why.

BT: How was business in 2019?

August Hatecke: UBS Global Wealth Management in Asia Pacific produced a solid year, with net new money inflows continuing in the region. Net new money reached a record level, topping US$31 billion for the full year, and invested assets grew to a new high of US$450 billion - an increase of almost US$100 billion from FY2018.

China remains a strategic priority for UBS. For instance, 2019 was the first full year that UBS owned a majority 51 per cent stake in UBS Securities in China and this has enabled us to further invest in developing an attractive domestic offering in China. UBS remains committed to this region, and last year, we also announced a ground-breaking joint venture with Sumitomo Mitsui Trust Holdings, Japan's first-ever wealth management partnership between a global financial group and a Japanese trust bank.

Benjamin Cavalli: Our Asia Pacific division reported record fourth quarter pre-tax income of 235 million Swiss francs (S$333.3 million). Our assets under management were at an all-time high of 220 billion Swiss francs, up 10 per cent year on year. For 2019, private banking revenues reached a record level driven by transaction-based revenues and net interest income, supported by deeper mandate penetration as clients tapped into our integrated expertise and structured solutions. We managed to increase our managed solutions penetration which have performed well through our robust selection process and supported by the accuracy of our CIO calls and this has also driven the conversion of more investible assets into higher recurring assets.

Sim S. Lim: Wealth income increased 16 per cent year-on-year to S$3.08 billion, driven by growing demand for investment products in the second half. Wealth assets under management also rose 11 per cent year-on-year to a new high of S$245 billion. We've continued to boost frontline staff numbers, with many of our relationship managers trained and seasoned internally through our wealth continuum - they grow with us from Treasures, to Treasures Private Client and then on to Private Bank, similar to how our clients progress with us over time.

Arnaud Tellier: We had another good year in 2019, with significant inflows, high growth in AUM, continued strong results and stellar performance in our mandates. We made a number of key strategic hires and continued to grow the depth of our relationships with clients across the region. What also stood out last year was the global awareness that sustainability had become an inevitable priority for all actors of society. We are striving to echo this pressing issue through actions in our various business activities and have been carbon neutral since 2017. As a group, BNP Paribas is a strong advocate of the 2015 Paris Agreement on climate change with concrete and strong measures in place to support these efforts.

Vinay Gandhi: 2019 was a strong year for Bank J. Safra Sarasin in Singapore. In recent years, we have hired a number of senior relationship managers and advisors from large private banks who were looking for an institution where the interests of the bank and their clients were better aligned, and which offered truly open architecture. We have been extremely successful in attracting new clients to our bank through a combination of our platform and solutions. This has resulted in a very strong financial performance for our branch last year. We continue to build upon this and hire, especially focusing on expanding in our domestic Singapore market.

BT: What's your outlook for 2020?

Philip Kunz: As we welcome the start of a new decade in 2020, investors face multiple challenges of global economic slowdown, historically low interest rates and trade uncertainties. This highlights the need for us to chart a new path for investments by building a resilient portfolio strategy to generate income, growth and stability. The good news is that the US-China Phase One trade deal can de-escalate trade tensions while the partial rollback of existing tariffs will stabilise the trade cycle. Whilst it's too early to say, the coronavirus outbreak will likely have an impact on business sentiment and near-term economic growth. At this juncture, we expect largely positive growth across major economies in 2020 and 2021 and we believe resilient consumer spending will remain the key growth engine of the global economy in the years to come.

However, the "slow for longer" global growth and "low for longer" rate environment will drive expected returns of most asset classes lower in the new decade. The outlook for a more comprehensive Phase Two trade deal to improve growth expectations in 2020 remains uncertain. The US presidential election in November 2020 will add uncertainty to trade talks, bring headline risks and fuel two-way market volatility.

We adopt a multi-faceted investment strategy to build resilient and globally diversified portfolios to manage the challenges of slow growth, low income and global uncertainties. We believe a balanced portfolio strategy with focus on quality earnings, structural growth, carry opportunities and global diversification will help investors achieve optimised investment returns in 2020. To achieve growth, we are overweight US and UK equities and neutral on Asian equities with a focus on structural growth themes exposed to the Asian middle class and economic transformation and Industrial Revolution 4.0.

To hunt for income, we seek to capture carry opportunities in USD investment grade credit, EM and Asian hard currency and local currency bonds. We complement our income strategy with high dividend with growth stocks, real estate and private market instruments to diversify sources of income generation.

Mr Hatecke: Looking into 2020, one key event will be the US presidential election. The polls do not seem to be overly decisive at this stage and the final outcome might surprise a number of market participants. We recommend that investors may wish to focus on economic and financial data instead. With the recent outbreak of the coronavirus in China, we expect the impact on the region's economy and risk assets to be short-lived, in part based on evidence from the past. Since the timing around this is difficult to predict, we do not recommend investors take directional positions or withdraw from financial markets based on news about the virus. Instead, UBS CIO recommends that investors stay invested and maintain a diversified investment portfolio. Diversification is always key, as is sticking to your investment plan - which for us means staying overweight on global and Asia ex-Japan equities.

Our UBS CIO base case is for double-digit earnings growth for Asia ex-Japan (AxJ) and emerging market (EM) equities in 2020. Investors may wish to consider yield-enhancement strategies in FX (eg, USD based vs CNY-alternate) and equities. Investors may also consider discounted quality stocks, select online names and those with high yields. In FX, UBS CIO likes being long the INR, IDR, PHP and MYR versus the USD.

Mr Lim: The 2019 novel coronavirus remains a key concern in the near-term, particularly for more vulnerable industries such as consumer consumption and services. Considering the likely negative impact from the loss of tourism receipts, consumption, and manufacturing standstill etc in Q1 2020, we have downgraded our gross domestic product forecasts for Mainland China, Hong Kong SAR, Taiwan region and Singapore. That said, we believe most players will stand resilient with sufficient cashflow to tide through a few months of shortfall. To provide some ease, DBS is also extending a six-month moratorium on principal repayments for property loans to small and medium-sized businesses in Singapore and Hong Kong, as well as mortgage loans for retail clients in Singapore.

As the world moves into one of slower growth and low interest rates, it is ever more imperative to adapt our strategy to navigate key risks and opportunities. We reiterate our CIO's Barbell Strategy on building portfolio resilience - a two-pronged approach comprising income-generating assets, and stocks that benefit from long-term secular growth trends (eg companies capitalising on the digital economy and ageing populations).

In the longer-term, we remain optimistic about Asia and the underlying themes powering its potential. With Asia facing an unprecedented intergenerational wealth transfer, themes such as succession planning and sustainability are fast becoming of interest to clients, and expected to persist into the coming decade and beyond.

Mr Cavalli: As we enter 2020, we expect that the returns environment will exhibit the following traits: Lower cash returns expected across all markets. Major government bonds are expected to deliver lower total returns, after a strong 2019 outperformance. Equities and alternatives are likely to outperform fixed income, but with higher volatility. A pick up in global manufacturing could see demand for commodities increase, which would benefit that asset class. Within Asia, we are neutral on all markets as we could see some short term volatility given the recent coronavirus outbreak. However, once it subsides, Chinese growth should bounce back both because of pent-up demand and because the Chinese government seems likely to ease monetary and fiscal policy further in the months ahead. We will be watching for triggers of a more constructive outlook like a peak in the number of infections and further falls in market prices to strong support levels. In the fixed income space, we like Asian high yield credit and subordinate financial debt as they offer a great mix of higher yield and strong fundamentals.

In addition, we have two thematic areas of focus - China property and Asia's New Economy. These are meant to be relevant for the 6-24 month time frame. Property is among the most favoured policy levers in China, particularly in the current climate when growth is slowing and manufacturing is on the weaker side.

A likely confluence of strong growth, less hawkish policies from authorities and deleveraging by companies should make the property sector an attractive investment target in the current environment of low interest rates. The recent RRR cuts and easing of restrictions on the property sector confirms our optimistic view. The China property theme straddles both equities and fixed income, given that the Asia high yield market is dominated by issuers from the Chinese property space.

Asia's New Economy - centred on the key technologies of cloud computing and 5G - is an attractive option in the equities space given the focus that has been placed on 5G by governments across Asia. The US, China, South Korea and Japan are leading in 5G in the early rounds and China expects to have full coverage of Beijing, Shanghai, Hangzhou and Guangzhou by the end of 2020. Singapore meanwhile is planning to roll out 5G mobile networks in 2020 and have half the island covered by 2022. 5G will accelerate consumption and delivery of services across a range of sectors, and this is where cloud computing will be key. In China, the market for private and public cloud services is growing twice as fast as the global rate and could represent 25 per cent of the global market by 2023.

Mr Gandhi: We see an ever greater role for private banking advisory as investment opportunities grow in complexity. This complexity has been amplified by the emergence of the novel coronavirus. In such challenging times, clients need trusted and seasoned advisors who have experience handling difficult situations and market turbulence, and who can advise on managing their risks and strategically look for investing opportunities. We are fully committed to our clients and the region, and will continue to hire mature, experienced bankers who can offer credible, authoritative expertise. Despite market uncertainty, we continue to expect greater demand for private equity and real estate investments, which we are uniquely placed to offer clients.

Mr Tellier: We expect another solid year in 2020 when we will continue to pursue growth in our key markets where we have a strong competitive offering. We will continue to look for sustainable ways to grow for our clients and we foresee even better take-up of green and social impact investment opportunities. While we are in expansion mode in Asia Pacific, we understand that our growth must be sustainable to ensure the long-term best interests of our clients are realised. To this end, we will continue to simplify our processes in order to enhance the client experience, develop our digital tools and build our capabilities with technology, as well as human power. We see strong potential for growth in the onshore business in Taiwan and we will look for other opportunities as other markets develop and grow.