Wealthy Chinese have shown increasing interest in overseas investment in recent years but that represents a very small portion of their wealth.
It’s estimated that offshore investment will account for 9.4 percent of their portfolio in the future from the current 4.8 percent.
That would be worth 13 trillion yuan (US$1.9 trillion) in the coming years, bringing massive opportunity for Hong Kong’s private banking and wealth management industry.
China has been very cautious in allowing domestic investors to invest abroad in the past despite explosive wealth creation over the past decade.
That is due to fears about excessive capital outflows and draw-downs on foreign exchange reserves, according to Desmond Liu, head of Private Banking, North Asia and Greater China of Standard Chartered.
Nevertheless, Beijing has been encouraging Chinese companies to invest more in overseas infrastructure projects, particularly Belt and Road projects.
Offshore investment will account for 9.4 percent of Chinese households in the next five years, up from 4.8 percent at present, according to a report from China Everbright Bank Co. and the Boston Consulting Group.
As Chinese companies pursue a Go Out strategy, they pay dividends to their shareholders on their overseas profits.
Individuals would use these dividend payments to make investment, said Sermon Kwan, head of Greater China and chief executive of Hong Kong branch of Bank of Singapore.
Many mainland investors have bought properties in Hong Kong and are now targeting real estate in London, New York and Vancouver.
Rich Chinese have robust demand for overseas investment, he said.
Amy Lo, chief executive of UBS Wealth Management Hong Kong and chairwoman of Private Wealth Management Association, said China remains the world’s fastest-growing economy despite moderating growth in recent years.
Chinese companies spent a record US$173.9 billion in outbound acquisitions in the third quarter of the year, up 68 percent from the year before.
“A lot of billionaires have been created by these acquisition deals or listing activities which have also created great opportunity for the wealth management industry,” she said.
Led by China, Asia is creating one billionaire every three days, according to UBS Billionaire report.
One hundred thirteen Asian entrepreneurs attained billionaire status last year, accounting for more than half of the global total of 210 in 2015.
Of the 210, 80 billionaires came from China.
At present, 60 percent of China’s high net-worth individuals have invested abroad, or about 10 percent of their total wealth, the report said.
Chinese billionaires have shown growing interest in overseas asset allocation and alternative investment, Lo said.
Also, Chinese entrepreneurs are more mindful of wealth planning and intergenerational transfer.
Hong Kong, as a mature economy, has a sound regulatory framework for offshore financial investment.
A weaker yuan has prompted more mainland investors to move assets overseas to diversify risk.
They are more willing to hire professionals to manage their wealth, said Claude Haberer, chief executive of Pictet Wealth Management in Asia.
This article appeared in the Hong Kong Private Banking Journal on Nov. 16
Translation by Julie Zhu
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