Singapore has become a hub for private equity in Asia.
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Ultra-rich investors in Asia-Pacific are shifting away from a “wait and see” approach they adopted at the onset of the pandemic as concerns over market volatility set in, a new survey by Swiss private bank Lombard Odier showed.
The survey of 450 the region’s wealthy investors — defined as those with a minimum of $1 million of investable assets domiciled in Asia-Pacific — revealed their top concerns.
They included how to manage current market volatility and geopolitical risks, as well as how to better diversify their portfolio to mitigate these risks, according to the 2022 HNW Individuals (HNWIs) Study.
The urgency of these strategies has risen since the survey in 2020, Lombard Odier said.
“During the peak of COVID-19 in 2020, a majority of APAC HNWIs surveyed did not change their portfolio characteristics and were adopting a ‘wait and see’ approach,” said Lombard Odier’s Head of Ultra High Net Worth Individuals Offering Asia, Jean-Francois Aboulker.
“This was mainly due to a lack of understanding of the risks involved and uncertainty over how the pandemic would evolve.”
Now, about 68% of the investors in Singapore, Hong Kong, Japan, Thailand, the Philippines, Indonesia, Taiwan and Australia have realigned or changed their portfolios to better weather current market conditions.
About 77% of those surveyed said rising inflation and the prospect of recession were the most troubling. Singaporeans were the most worried about this condition.
“Even Japan, where inflation had been close to zero for more than three decades, is now facing inflation pressure, and 69% of Japan HNWIs are concerned about it,” the report said.
“Whether the Bank of Japan will make a tightening move remains unclear, but a third of Japan HNWIs believe it will happen in the coming 12 months.”
Wealthy investors in the region are generally less concerned about possible rising interest rates, mainly because they think most governments will be prudent not to increase rates to the point that they may damage economic growth, the survey showed.
However, Australian and Indonesian investors are not so sure. A majority of those surveyed in those countries, around 70%, say higher interest rates are a “significant worry.”
Investors in the Philippines are the most concerned with geopolitical instability, while those in Hong Kong and Singapore also cited geopolitical tensions as one of the top risks in the next 12 months.
These investors are worried about the impact of geopolitical risks and conflicts on the returns of their investments, with many expecting lower returns ahead. They are also concerned they may miss out on opportunities during this time of volatility.
Many in Hong Kong and Japan questioned the effectiveness of their current diversification strategies given how the current environment of “falling stock prices, widening credit spreads and high long-term rates” have negatively impacted their portfolios.
In an effort to mitigate these risks, two things have transpired.
Ultra-rich investors in APAC have turned more conservative, and are diverting more from traditional asset classes — such as stocks and bonds — toward investing in their own company, the survey found.
Many have also put money into “safer” assets such as cash and gold. Some are also investing in private assets including private equity, private debt, real estate and infrastructure investments and investors in Singapore and Australia are leading the charge.
Additionally, many investors have moved away from their domestic markets in the past two years. To manage the post-Covid uncertainty, a more global mix in their portfolios has been the result and Japanese and Indonesian investors are actively doing this, the report found.
“Even if the impact of Covid-19 is global, there are significant divergences in equity returns in different countries, and certain asset classes are underrepresented in some markets,” Lombard Odier’s Aboulker said.
“These investors are sophisticated, and understand the importance of a long-term approach in looking out for assets beyond their domestic markets, whilst reducing their reliance on domestic factors.”