Hong Kong's ultra rich investors scared of Europe bonds: survey

Find out what turns them off.

According to an LGT Group-sponsored study of high net worth individuals in Hong Kong, Singapore and Switzerland, private banking clients in Hong Kong have the highest level of portfolio diversification, investment knowledge, risk appetites and expectations for returns.

The study was led by Prof. Dr. Teodoro D. Cocca, Professor for Asset Management at the Johannes Kepler University in Linz and is based on interviews of 505 high net worth individuals in the three markets in 2012. Analysis of the results was carried out independently by Prof. Dr. Cocca; Annie Koh, Associate Professor of Finance at the Singapore Management University and Academic Director of the Business Families Institute and the Financial Training Institute; and Kalok Chan, Professor of Finance and Head of the Finance Department at the Hong Kong University of Science and Technology.

Expectations for returns were considerably higher in the two Asian markets than in Switzerland. The mean return strived for from assets over the next five years is 15.2 percent per annum for those surveyed in Hong Kong, 13.3 percent for Singapore and 5.5 percent in Switzerland.

Singaporean investors who want to outperform the market anticipate the highest return, 19.2 percent, compared with 17 percent in Hong Kong and 8.8 percent in Switzerland.

“The higher return expectation in Hong Kong reflects that Hong Kong investors are confident of their investment skills, and that they might overestimate their ability in stock picking or choosing the best performing asset classes,” Prof. Chan said.

In Hong Kong, the proportion of interviewees who said that they have a very good knowledge of investment matters is at 30 percent, considerably higher than in the other two markets (Singapore: 7 percent; Switzerland: 16 percent).

The proportion of investors who make their own investment decisions without a consultant is also the highest in Hong Kong at 55 percent, compared with Singapore (33 percent) and Switzerland (39 percent).

“Many Hong Kong residents migrated to other countries before the handover in 1997, as they were concerned about the political uncertainty and afraid of losing their economic freedom afterwards. Consequently, they adopted a short-term attitude and were much more willing to take risks, as they hoped to make money so that they could emigrate to other countries,” Prof. Chan said.

The study also showed low diversification in all markets, with 45 percent in Hong Kong having insufficient diversification, i.e. less than four asset classes, compared with 53 percent in Switzerland and 67 percent in Singapore.

However, Hong Kong portfolios had comparatively higher average diversification. Investments were in an average of 3.5 asset classes, with 17 percent investing in two or fewer asset classes and 56 percent in at least four asset classes.

Taking into consideration risk and anticipated return, European blue chip equities and EUR bonds performed the worst as far as the clients surveyed in Hong Kong and Singapore are concerned. The negative assessment of European investments (shares and bonds) and the positive assessment on CNY bonds is consistent among the three markets.