Lombard Odier study reveals pivotal role of private banks in helping APAC HNWIs navigate COVID-19 uncertainties
26 October 2021 –As the world grapples to live with Covid-19 as an endemic, a sense of uncertainty prevails amidst rising complexity and market divergence. High Net Worth (HNW) 1 investors in the Asia-Pacific (APAC) are exhibiting greater caution and increasingly relying on private banks’ advice and expertise to navigate individual markets – in terms of investment, sustainability and matters of the family.
Lombard Odier is pleased to release today the findings of its 2021 HNW Individuals (HNWIs) Study that was conducted to better understand HNWIs’ perception of the current pandemic environment, the impact of the crisis on their lives, families and businesses, as well as their thoughts on the post-pandemic future. The study is a follow-up2 to Lombard Odier’s 2020 UHNWIs Study, and offers insights distilled from leading families and entrepreneurs that are poised to shape the wealth management landscape in the region.
For this year’s study, Lombard Odier spoke to 620 HNWIs domiciled in Singapore, Hong Kong, Japan, Thailand, the Philippines, Indonesia, Taiwan and Australia, harnessing the collective network of Lombard Odier’s strategic alliances and close partners in APAC. Findings were framed across three pillars—(i) Investments and the global economy, (ii) Sustainability, and (iii) Family matters—offering perspectives on how investors view the reshaping of the region post-Covid-19, their key areas of concerns, and the importance and impact of macro-economic decisions on their investment decisions.
Jean-François Aboulker, Head of UHNWI Offering, Asia at Lombard Odier, said: “The world economy continues to be disrupted by Covid-19 as many markets remain in a state of increased complexity. It is during such unprecedented times that we must continue to proactively engage, listen, and respond to the needs of our clients and partners to address challenges. Findings from the study show that amid the unpredictability of today’s environment, there is an increase in the divergence of views and needs of HNWIs, and they are increasingly looking to banks for guidance especially within individual markets. The race to net zero is also adding more diversity to investment opportunities, while wealth and succession planning remain even more relevant than usual. In this context, Private Banks play a vital role in providing quality advice and expertise to help HNWIs navigate uncertainties.”
Vincent Magnenat, Limited Partner and Chief Executive Officer, Asia at Lombard Odier, commented: “As we move forward and embrace this New Normal where ambiguities still abound, HNWIs have shown, through our study, that they are very much relying on their bank’s expertise to guide them through the turbulent environment. Diversification is of critical importance amidst today’s climate of volatility, and investors are looking for quality advice and access locally to global offerings. Lombard Odier is well-placed to help our clients achieve their needs across different markets, supported by our strategic alliance proposition where investors continue to engage in private banking services with a well-reputed bank in their home market, while gaining access to global investment opportunities.”
Select insights garnered from APAC HNWIs as part of the study include:
i. Investments and the global economy
- Significant differences in pandemic crisis management among countries have led to market divergence. Respondents in Australia, Hong Kong and Singapore feel the world has become "More Local, Less Global”, while other markets in our study continue to believe in a global economy. Local investors’ ability to diversify their portfolio into a global one is critical in a context of heightened volatility and divergence.
- Differences across domestic markets where our respondents are domiciled in reinforce the importance of banks fully understanding the needs of clients and adapting to them. Investors in some markets like Japan are more conservative in terms of taking greater risks, while others such as Thailand and the Philippines are more willing to adjust their portfolio risks. While they all have different views and risk appetites, it is important to note that they do want to act and invest.
- Almost all markets where our respondents are domiciled in are concerned that inflation will rise; 61% of respondents believe that going forward there will be a higher inflation environment, while fewer respondents believe that low interest rates are here to stay in the long term (56% in 2021 compared to 78% in 2020). It is the banks' clear responsibility to help investors both transition to an environment seemingly heading to rate and inflation normalisations, and adjust their portfolio accordingly.
- A significant proportion of HNWIs (44%) feel that equity markets are too high and due for a correction, and only 31% on average feel that markets will keep rising. Singapore and Taiwanese investors are the most concerned about an equity correction (52% and 52% respectively), while only 20% of Indonesia investors are concerned about this possibility.
- Almost 2 out of 10 HNWIs said they feel lost and would appreciate more guidance in navigating through difficult times. In this context, the study highlights increased caution from investors; investors are relying on banks’ advice and expertise to guide them through, and their willingness to delegate portfolio management is on the rise. With no clear consensus and cautiousness among investors, a bank’s role includes guiding investors towards diversification outside of their domestic market, especially with the majority of respondents intending to recalibrate their portfolio.
- 55% of respondents between 18 and 24 years old intend to change their portfolio's liquidity, compared to 48% for those between 35 and 50 years old, 42% for those between 51 and 70 years old, and 23% for those above 70 years old. This shows that the younger an investor is, the more willing he/she is to change his/her portfolio’s characteristics. Consequently, banks will need to make sure they engage proactively with Next Gens HNWIs as well, who will also be looking for accrued advice as they reposition their portfolio.
- The perception of sustainability is changing from just a “worthy cause” to a legitimate financial opportunity. 59% of respondents say they believe sustainability will generate superior returns, compared to 54% last year. As a result, 40% have already actively increased the proportion of sustainability factors in their portfolio since Covid-19, up from 34% last year. 51% of those who have not acted yet intend to do so (44% last year).
- Asian investors are increasingly taking action on sustainability, more than last year, and this trend will continue increasing in the future. Investors have already started to scrutinise companies’ environmental footprint, policies and practices, such as through their environmental, social and governance (ESG) scores – a trend exacerbated by Covid-19. 72% of respondents now expecting an accelerated response to climate change, compared to 52% last year.
- Nonetheless, the gap between conviction and action remains. 60% of respondents said they have not actively increased the proportion of sustainability elements in their portfolio, and 49% of those said they were not intending to or unsure about doing so. This gap creates both an opportunity and a responsibility for banks to lead the way forward to educate investors, provide guidance, and spur action.
- Banks play a pivotal dual role with their clients in the race to net zero. Banks provide clients with a full suite of sustainable investment opportunities and provide guidance to clients who are not yet fully convinced of the need to align their portfolio. The common consensus among investors is that it is the responsibility of their bank to help structure, implement, and monitor a sustainable portfolio, as well as to provide reporting that includes ESG/other sustainable metrics’ scores.
- The study also uncovered differences in views between genders and age-groups. Female respondents are more convinced than male respondents (68% vs 54%) that taking sustainability into account can lead to superior returns. There is also a strong correlation between age and interest in sustainability. The age group of respondents most convinced about the necessity of supporting sustainability and applying its principles came from those between 18 and 34 years old, followed closely by those between 35 and 50 years old.
iii. Family matters
Although 60% of respondents across the eight markets said the crisis has led them rethinking some family-related matters, half of them have not acted yet. It is critical for banks to be proactive in further educating clients on matters of the family. Banks need to bring their local expertise to investors in Asia-Pacific in order to help them find the appropriate solutions, and this will imply educating and supporting investors on this path.
- Although not many investors have relocated since the beginning of the Covid-19 crisis, “many” are thinking about it – as many as 40% of Singapore respondents, 34% of respondents from Thailand and 32% of respondents from the Philippines. A bank that is able to continue advising a client from its domestic country, regardless of the client location, will have a considerable competitive advantage compared to the bank whose reality is purely onshore. Banks can play a pivotal role in reassuring clients in terms of their options and the timing of potential moves.