Chinas onshore HNWIs look offshore
Mainland high net worth clients are looking for A-share funds and offshore RMB-denominated products while showing increased interest in US exposure, according to Wing Lung Bank.
"After removal of the daily conversion limits for RMB, the pool of RMB in Hong Kong is growing, so we are looking for more products denominated in RMB," said George Lee, investment consultancy and research head at Wing Lung.
"We're also trying to invest in some structured products that give better yield than standard deposits or even bonds."
Onshore clients are also asking for A-share funds. The A-share market has had a sharp rally since the Shanghai-Hong Kong Stock Connect opened in November and "rebuilt confidence in these markets", Lee said.
Hong Kong-headquartered Wing Lung is the offshore wealth management division of Shenzhen-based China Merchants Bank. Most of Wing Lung's Mainland-based clients come through referrals from CMB.
Joseph Tam, executive vice president and head of private banking and wealth management, said most China-based clients tend to have a conservative investment approach.
Onshore clients typically have exposure to fixed income and some high yield products, but lately Tam has been encouraging investment in equities due to the recovery in the US and the expected US interest rate hike this year.
"Mainland investors have shown interest in investing in US equity markets," he said.
Top down fund selection
Wing Lung uses an open architeture approach to fund selection, Tam said. The bank does not have its own mutual funds.
However, in 2012, China Merchants Group launched a new asset management subsidiary that has private equity funds. CMB officials said the investment range will eventually broaden to cover fixed-income assets, infrastructure and commercial property.
Tam explained that fund selection is done through a top down approach.
Morningstar's platform is used for quantitative selection of funds based on performance criteria.
The data is then used to support asset class views of analysts and researchers from the bank. Fund manager visits to discuss the latest products and market developments are also possible.
An investment committee, of which Tam is a member, meets monthly. The committee takes into account the views of the bank's analysts and decides on preferred asset classes and geographies. It then selects funds that fit into that picture. A list of roughly 400 funds is scaled down to a focus list of about 40.
A recent sampling of funds on Wing Lung's focus list:
AllianceBernstein-European Income Portfolio
JPMorgan Asian Total Return Bond
High yield bonds
AllianceBernstein-Global High Yield
Fidelity European High Yield Fund
Allianz Income and Growth Fund
Da Cheng China Balanced Fund
Schroder Asian Asset Income Fund
Fidelity America Fund
First State Asian Equity Plus Fund
Invesco Japanese Core Fund
JPM China Pioneer A-Share Fund