Report: 66% of the Investors in China’s Greater Bay Area Prefer Foreign Products
September 07, 2021
Shanghai, September 8, 2021 - The Guangdong-Hong Kong-Macao Greater Bay Area (GBA) has played a critical role as China’s sandbox for testing new regulatory approaches. These new schemes, including the upcoming Wealth Management Connect, are bound to increase the ever-growing demands of the GBA investors, unfolding Asset Management 3.0 for China, says a new report by World Economic Forum and Oliver Wyman.
Titled From Sandbox to Bridge: The Role of the Greater Bay Area in Connecting China with Global Asset Management, the report is the second publication that Oliver Wyman developedwith the World Economic Forum on China’s asset management industry. The report discusses the role of the GBA in the ongoing industry transformation and the longer-term opportunities that the GBA could unlock.
“Over the past year, China’s asset management industry continued to grow with the industry’s assets under management reaching $18 trillion (see Exhibit 1). We have also witnessed a multitude of partnerships between domestic and global industry leaders being set up to service this ever-growing market,” said Ray Chou, an Oliver Wyman Partner and one of the authors. “The GBA is expected to lead a plethora of innovative, cross-border asset management opportunities and thus provides important levers for global asset managers to expand their presence in China.”
The new initiatives will boost the region’s next wave of demands. According to an investor survey by Oliver Wyman, wealthy GBA residents show a strong appetite to invest in new offerings. For example, 66% of surveyed investors preferred foreign over local products when similar risks and returns. Additionally, 70% of the region’s ultra-high-net-worth and high-net-worth individuals expressed strong interest in increasing their investments in foreign financial products. Tremendous potential, therefore, awaits global asset managers and encourages them to upgrade products and propositions, says the report.
Upgrading products and propositions
To grow investor appetite for professionally managed solutions, the industry and regulators need to enhance product offerings for onshore investors by developing innovative asset classes and strategies and stepping up services and investor education efforts. This includes product innovation onshore within the GBA and Hong Kong products becoming accessible via existing GBA schemes, such as Wealth Management Connect, ETF Connect, Pension Connect, and real estate investment trusts (REIT).
Wealth Management Connect has already demonstrated the capability to move to a broader variety of products and cater to wider investment choices. Compared with other existing schemes, it provides more convenient, direct retail customer access. It will allow offshore residents to invest in wealth management products distributed by mainland Chinese banks in the GBA, and GBA residents to invest in products distributed by banks in Hong Kong and Macau. The scheme also leverages support from different regulatory regimes, such as the approval of products across the border.
Jasper Yip, a Partner at Oliver Wyman and one of the authors, said: “The introduction of Wealth Management Connect has served as a live case of rolling out purpose-built GBA infrastructure. We believe banks with strong onshore and offshore branches in the GBA will enjoy an advantage when leveraging this opportunity. They can support the required operations by enabling cross-border account opening, vetting and transactions, complying with onshore and offshore regulatory requirements, and building centralized and integrated operations.”
Driving innovation in ESG investment
In addition to launching the new connect scheme, the GBA is well-positioned to drive innovations in emerging, strategically important areas, such as environmental, social, and governance (ESG) investment. China’s ESG investment remains in its infancy nationally, with few products being offered and demand remaining subdued. The report believes the GBA could be playing a leading role in helping China establish its ESG investment environment, bringing in global capital, and connecting carbon trading platforms globally.
The asset management industry should embrace this opportunity proactively. The urgent task at hand is to begin developing ESG products in preparation for the expected rise in demand. Additionally, investor education should ensure relationship managers have sufficient training on ESG products to educate clients and build further interest.
Kai Keller, the Initiative Lead of The Future of Financial Services in China and Beyond at the World Economic Forum said: “The GBA will continue to grow as a national financial innovation hub, leveraging and maximizing the unique synergy of resources available to the region. This transformation process will introduce Asset Management 3.0 for China, defined by newly developing global connectivity injected through the GBA’s role as a gateway into and out of the country.”
“Industry leaders should actively address the key enablers, especially the flow of people, information, and products. They also need to leverage the GBA’s advantageous infrastructural and policy developments to create the case for building a globally competitive China asset management industry. Hopefully, China, the most exciting market in the world, will be fully integrated into the global flow of monies over time. If public-private cooperation is successful, then savers and investors in China – and globally – will benefit from the opportunities of sophisticated, well-diversified financial products. The Forum will continue facilitating much-needed dialogue between industry leaders and policy-makers and continue to discuss ways to shape the future of China’s financial system,” he added.
About Oliver Wyman
Oliver Wyman is a global leader in management consulting. With offices in 60 cities across 29 countries, Oliver Wyman combines deep industry knowledge with specialized expertise in strategy, operations, risk management, and organization transformation. The firm has more than 5,000 professionals around the world who work with clients to optimize their business, improve their operations and risk profile, and accelerate their organizational performance to seize the most attractive opportunities. Oliver Wyman is a business of Marsh McLennan [NYSE: MMC]. For more information, visit www.oliverwyman.com. Follow Oliver Wyman on Twitter @OliverWyman.