Why a confluence of domestic and international events are fuelling investor caution.
The rising economic heft of the Asia-Pacific region is a well-documented story of stunning wealth creation and high investment returns over the course of several decades. Yet amid the current period of geopolitical and economic uncertainty, the usual narrative of sky’s-the-limit optimism is taking a turn. According to research conducted by The Economist Intelligence Unit (EIU) and commissioned by RBC Wealth Management, high-net-worth individuals (HNWIs) in Asia are incorporating a dose of caution into their investment strategies. They are also, however, taking a proactive approach that still allows for long-term optimism about the trajectory of the region. This matters because a new generation of investor is emerging, one whose priorities, aspirations and concerns will shape the global wealth map for decades to come.
In Asia, gross domestic product per capita more than tripled between 2000 and 20181 and the number of HNWIs grew by more than a third.2 Even though the Chinese economy is growing at its slowest rate in nearly 30 years,3 the outlook is still upbeat, according to Elliot Billings, managing director of international business development consultancy Intralink China. “China’s economy is still growing at two to three times the rate of most Western countries,” he says. “It’s soon to be the world’s largest economy—there are great wealth-creation opportunities.”
Yet a confluence of factors is fuelling investor caution. In a survey conducted as part of our research,4 the concerns of investors in Asia are primarily centred around cross-border trade/tariff issues, much more so than for respondents in the U.S., UK and Canada. While a trade war would not be good for either side, Asia is arguably more exposed—for example, trade in the Association of Southeast Asian Nations, a regional grouping, is worth more than 100 percent of GDP, yet trade makes up only 28 percent of GDP in the U.S.5
Source: The Economist Intelligence Unit
Asia’s investors also have domestic concerns, including inflation, the increased cost of living and interest rate uncertainty. On nearly every factor asked about in the survey, respondents in Asia show higher levels of concern than those in the UK and North America—perhaps reflecting the region’s history of unstable currencies, most obviously in the case of the Asian financial crisis of 1997–98. The only areas towards which investors in the UK and North America show greater anxiety are tax changes and increased cost of living.
This uncertainty may be why 40 percent of the HNWIs surveyed in Asia classified themselves as risk-averse, nearly twice the proportion of those who describe themselves as aggressive. Yet risk-averse does not necessarily mean shying away from certain investments—it is likely that HNWIs simply crave more information on the risks and potential downside so they can be more informed about their risk-weighted returns.
This is supported by the higher numbers of so-called active investors6 in Asia—40 percent, almost double the figure in the U.S. Asian investors are also 17 percent more likely to say that they are more attentive to their portfolios now than in the past because of the current economic cycle.
The caution displayed by the region’s investors is reflected by their propensity to shift to less-risky investments and ensure greater diversification. According to Ramakrishna Velamuri, chair professor of entrepreneurship at the China Europe International Business School (CEIBS), risk-averse behavior in Asia is rational, considering equity, debt and real estate markets have performed steadily in Asia in the past decade.
“Asian investors, particularly in China, have lost confidence in the stock markets, and real estate has been absorbing huge amounts of savings, including from HNWIs,” Velamuri says. “However, we see a large number of HNWIs, especially the more affluent ones or ultra HNWIs, investing as limited partners in venture capital and private equity funds.”
But what others might consider off-limits may not—after a careful risk assessment—be seen as risky by Asian investors. Despite their caution, they are more likely than their counterparts in the UK, U.S. and Canada to plan to invest more in foreign holdings and alternatives, and are more willing to borrow in order to invest.
According to Magnus Grimeland, founder and CEO of Singapore-based global startup generator and early stage venture capital firm Antler, Asian HNWIs see opportunity in technological advances and digitalisation, which could result in some novel investments. “[They] want to both diversify their portfolios away from traditional asset classes, as well as modernise their own businesses,” he says.
The higher degree of active investing among Asian respondents appears to drive greater optimism about achieving their financial goals, as well as of longer-term growth. Compared with UK and North American respondents, Asian respondents are 20 percent more likely to take a positive view of future generations’ wealth-creation prospects versus their own. This suggests investors do not view recent economic turbulence as the beginning of a lengthy slump, but rather as only a brief dip in a much longer-term upward climb.
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