China's super wealthy keep injecting assets in Hong Kong

HNWIs' wealth grows by 15% every year.

It has been noted that China’s wealthy are poised to continue their diversification of wealth overseas.

According to a research note from KGI Fraser Securities Pte. Ltd., this, combined with their preference for Hong Kong as their investment destination, increased demand for asset and wealth management services is expected.

The report noted that it sees Chinese-backed Hong Kong securities brokerages as the main beneficiaries of this shift as they are able to leverage on their Chinese parents’ existing relationships with these high net worth individuals.

Here's more from KGI Fraser Securities Pte. Ltd.:

Rapid economic growth for the last three decades has led to significant wealth accumulation for Chinese investors. Per capita urban household disposable income increased from RMB17,175 in 2009 to RMB28,844 in 2014, at a CAGR of 10.9%.

It is estimated that the country’s high net worth individual (HNWI) population exceeded one million in 2014, with the private wealth market surpassing RMB100tn in the same year, recording a CAGR of around 15% between 2010 to 2014.

In the case of HNWIs, demand for overseas investments has been increasing over the years as the HNWIs diversify their household financial asset allocation. According to a 2015 private banking survey conducted jointly by Bain & Company and China Merchants Bank, demand for overseas investments has been increasing among HNWIs, with 37% of HNWIs holding overseas investments in 2015, up from 19% in 2011.

The demand is even more pronounced for the ultra-HNWI segment, with over half (57%) of them holding overseas investments, up from 33% in 2011. More importantly, a large majority of HNWIs preferred investing in Hong Kong, with 71% of HNWIs surveyed citing Hong Kong as their top choice for overseas investments, ahead of the U.S. which garnered 54%.

In particular, we believe full-service brokers, especially those Chinese-backed ones, have good competitive edge over traditional commission-focused firms as they can offer diversified financial products and services to meet their customers’ needs.

We also expect Chinese-backed Hong Kong brokers to be the main beneficiaries as they are able to leverage on their parents’ branding and networks in China to capture these wealthy clients. The internationalization of RMB and also the opening of China’s capital account over the long term should help to boost the demand for more overseas investments.