Hong Kong banks seek share of mainland China’s wealth through mutual access program

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A program that allows Hong Kong banks to sell offshore wealth management products in some of southern China’s wealthiest cities is emerging as a new source of growth in commission and customer revenue. for relatively small and mature market lenders.

Leading Hong Kong lenders are gearing up for the so-called Wealth Management Connect program, which will allow them to sell mutual funds and other offshore investment products to qualified residents in nine mainland cities, in a pilot phase starting early June. Qualified residents must have net financial assets with a monthly balance greater than 1 million yuan or financial assets greater than 2 million yuan in the past three months.

The units of HSBC Holdings PLC Hongkong and Shanghai Banking Corp. Ltd. and Hang Seng Bank Ltd., Standard Chartered PLC’s Standard Chartered Bank (Hong Kong) Ltd., as well as The Bank of East Asia Ltd. hire more wealth managers, strengthen their digital services or improve their back-end services such as data management and cybersecurity.

“Fundamentally, the growing wealth of Chinese investors is fueling a huge demand for wealth management products and services. Not to mention that the demand for diversification is strong due to the decline in the risk-adjusted returns of onshore assets. Opportunities [for Hong Kong banks] were largely constrained by the size of the local market which has long grown, ”said Nathan Chow, economist and strategist at DBS. Chow expects the program to bring “double-digit growth” to the wealth management businesses of these banks, without specifying a time frame.

Hong Kong banks offer wealth management services in mainland China through their onshore branches across the country, but have mostly limited themselves to providing locally approved financial products. The Wealth Management Connect program will add more offshore products and non-yuan assets to the offering, which bank executives and analysts say will likely meet with a strong appetite from mainland investors looking for portfolios. more diverse.

“At the initial stage, given the need for retail investors to familiarize themselves with the products and the cross-border investment environment, we limited the scope to weaker and relatively simple wealth management products. upon launch, “the Hong Kong Monetary Authority said in an email to Market Intelligence. He added that the program will exclude structured products investing primarily in derivatives such as futures and options.

Capture growth

The nine mainland cities of the pilot program, including some of the largest and wealthiest cities such as Shenzhen and Guangzhou, are part of the Great Bay region, which is a strategic mega-city that aims to foster innovation and financial links between these cities. cities, Hong Kong and Macau. The program also allows mainland Chinese banks to sell onshore wealth management products to investors in Hong Kong who meet certain asset thresholds, with a combined quota of 150 billion yuan. Beijing has already implemented two other connection programs that aim to provide mutual access to the equity and bond markets between Hong Kong and mainland China.

HSBC said on May 10 that it was on track to hire 1,000 people for its wealth management and personal banking business in Asia in 2021, part of its five-year plan, announced in February, to hire 5000 people for the unit in the region. . The company made about 7.8 billion Hong Kong dollars, or 15.5% of its total revenue in 2020, from the sale of wealth management investment products.

Standard charter in April revealed plans to hire 400 staff at its Hong Kong retail banking and wealth management unit in 2021, after setting a target in March to triple its revenue in the Hong Kong region. the Grande Baie. Wealth management activities represented approximately 13.3% of Standard Chartered’s underlying operating income in 2020.

Bank of East Asia is also expanding its Greater Bay Area office in Hong Kong, which was established in January. “With the necessary infrastructure in place, we envision a steady increase in the contribution of the Grande Baie region to our wealth management activities and becoming a key driver for our high net worth segment,” the company said.

Edna Wong, risk advisory partner for KPMG based in Hong Kong, added: “This will certainly give a big boost to cross-border wealth management and digitization. Banks need to better plan their digital strategy to ensure the customer experience, manage regulatory risks and other risks arising from digital services, including, but not limited to, data and cybersecurity. “

A strong appetite

“Many investors in mainland China are underserved by the wealth management industry, especially given their growing interest in diversifying beyond [Chinese yuan] assets. The program is a significant breakthrough for the financial sector. This facilitates the increased appetite to invest internationally [through] Hong Kong and, on the other hand, access [Chinese yuan] solutions in mainland China, ”said Daniel Chan, Greater Bay Area Manager at HSBC.

Chan also added that there are over 450,000 high net worth households with over 6 million yuan of investable assets in Guangdong Province, Hong Kong and Macao, and less than 20% of retail investors in the region. Grande Baie has cross-border wealth products.

According to a July 2020 DBS report, Guangdong Province’s GDP volume was $ 1.5 trillion in 2019, making it the fourth-largest subnational economy in the world, after California, Texas and New York. The nine cities of the Big Bay region accounted for 85% of Guangdong’s economic output.

Hong Kong has HK $ 9.1 trillion in AUM for private wealth management activities in 2019, according to a November 2020 report by consultancy firm KPMG. China’s wealth management industry is estimated to be worth at least $ 17 trillion.

Hope for wider access

Wealth Management Connect was first announced in June 2020. Despite the small scale of the pilot phase, Hong Kong banks see it as an indication of greater access to the mainland Chinese market in the future.

“The configuration is very similar to that of Stock Connect [scheme]. As we observed in Stock Connect, quotas, limits and qualifying products have been gradually relaxed over time as usage increased, ”said Ju Wang, senior currency strategist at HSBC, in a statement. May 7 report.

The Stock Connect program was first launched in November 2014 between the Shanghai and Hong Kong stock exchanges and extended in 2016 to include the Shenzhen market.

As of May 25, US $ 1 was equivalent to 6.41 Chinese yuan.

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