In a landmark research collaboration, Julius Baer and Bank of China Limited have jointly launched the 2014 annual report on wealth trends in Asia. The report finds domestic investors, High Net Worth Individuals (HNWI) in China have a positive stance on risky assets and are turning increasingly to private banks to meet their financial service needs.
This year’s Julius Baer – Bank of China Wealth Report: Asia provides a focused China Lifestyle Index of 12 mainland China cities. The report also examines pivotal shifts in the world’s second largest economy and how HNWI in China see private banking as well as the education for their next generation.
Shumin Zhu, Executive Vice President of Bank of China Limited commented: “Internationalization of the renminbi is a key element in China’s wider economic reform process and Bank of China is at the forefront of this development. As a bank, we are committed to contributing to supporting China’s businesses and entrepreneurs, who strive to further develop the country’s economy and contribute to the China Dream. We are very pleased to cooperate with Julius Baer in producing this landmark report. The findings confirmed that our clients, many of whom are entrepreneurs, are confident about the future of the Chinese economy and investment environment. As the leading wealth manager in China, sharing expertise with Julius Baer as new opportunities emerge in global private banking, is an exciting proposition for Bank of China.”
Boris F.J. Collardi, Chief Executive Officer of Julius Baer Group Ltd, said: “Our strategic partnership with Bank of China comes as the economies in the region are becoming increasingly synchronised and financially integrated. It is clear to us that the combination of these factors, together with the internationalisation of the renminbi, Asia’s growth drivers are evolving rapidly. These are important issues, and our partnership with Bank of China places Julius Baer in a prime, unique and privileged position to engage with our international clients on these matters.”
The Julius Baer – Bank of China Wealth Report: Asia features a unique survey of a representative sample of Bank of China’s onshore private banking clients across the nation. On the forefront of China’s economic transition, Bank of China’s private banking client base represents mostly entrepreneurs who cherish the services that Bank of China offers.
Internationalization is a key theme that echoes throughout the report. Be it from the perspective of High Net Worth Individuals (HNWI) as parents or investors, respondents to the surveys on private banking service and education planning for their next generation expressed clear interests in broadening horizons. This parallels with the joint Julius Baer and Bank of China stance on what is happening in China’s economy and broader policy making arena today.
Macro landscape
Among the key highlights of the 2014 Julius Baer – Bank of China Wealth Report: Asia, worries over ‘hard landings’ in China are unfounded, as these ignore the important progress already made in the context of evolving the economic model. Also, the Bank of China proprietary Cross-Border RMB Index (CRI) points to the continual internationalisation of the currency, echoing the shared view that reserve currency status is attainable in the medium term.
Private banking clients in China
In a landmark research enterprise, Bank of China has surveyed over 200 of its private banking clients in 30 branches across the country. The face-to-face interviews took place in mid-June 2014, gauging client preferences with regard to private banking products and services and their outlook on financial markets.
Structured products that offer capital protection remain the preferred investment vehicle, but foreign exchange-linked products, bonds and overseas equities were listed as being of interest over the coming 12 months.
In terms of cross-border investing, the top two interests over the next 12 months are to invest overseas financially (44%) and buy properties (40%). In terms of investment destination, the United States and Canada (61%) took the top spot, followed by Hong Kong (34%), Australia (21%), continental Europe (15%) and the United Kingdom (11%) tying with Singapore (11%) in fifth place.
The preferred long-term investment is real estate (53%). In terms of gold, survey respondents see the longer term value of holding gold (35%) in their portfolios, but have limited return expectations in the shorter term. Equities (14%) ranked last as a ‘long-term investment’.
The Julius Baer – Bank of China Lifestyle Index
2014 marks the launch of the Julius Baer – Bank of China Lifestyle Index, covering the cost of luxury goods and services as relevant to HNWI entrepreneurs across China. The data will be collected on an annual basis, in tandem with the enhanced Julius Baer Lifestyle Index.
There are twelve cities grouped into four regions. Bohai Economic Rim (Beijing, Tianjin, Dalian), Yangtze River Delta Zone (Nanjing, Shanghai, Wuxi), Pearl River Delta Zone (Guangzhou, Jiangmen, Huizhou) and the Western China Emerging Zone (Chongqing, Chengdu, Xian).
The items covered are: business registration fees, dental implants, first class domestic air travel, golf club memberships, hospital, hotel suites, luxury property and wedding banquets.
The highest average costs are found in the Bohai Economic Rim, with a significant gap between Beijing and the other two member cities (Tainjin and Dalian). The lowest costs can be found in the Western China Emerging Zone – as well as the gaps between the three cities (Chongqing, Chengdu and Xian) are the smallest. Investing in future generations
Within the Julius Baer Lifestyle Index, the education-related components (university tuition and boarding school fees) have shown the most consistent increases, double-digit increases since 2011. Taking this as a starting point, Julius Baer commissioned a survey of over affluent 800 parents across Beijing, Shanghai, Hong Kong, Mumbai and Singapore, to ascertain their attitudes, preferences and expectations in terms of investing for their children’s futures.
Parents in Beijing and Shanghai (98%) have the highest expectations that their children will achieve advanced degrees (Bachelor degree or above).
Singapore (64%) stands out for the strongest preference for local universities. Parents in China (66%) have the clearest preference for overseas education, in particular the United States and United Kingdom. Interestingly, this echoes the results of the Bank of China private banking survey in terms of desired overseas investment destinations.
Parents in Mumbai (91%), Beijing and Shanghai (88%) have the strongest expectation that their children will enjoy higher incomes than themselves.
In terms of generational transfers, parents in Beijing and Shanghai (62%) feel that passing on personal values to their children is simultaneously the most important and challenging aspect of being an affluent household. By contrast, for parents in Mumbai (39%), the most important qualitative aspect of generational transfer cited was ‘skill’. Thomas R. Meier, Region Head Asia Pacific of Julius Baer said: “Julius Baer and Bank of China have been working together to promote the exchange of wealth management experience and knowledge, as well as to enhance the understanding and confidence in the strong fundamentals of the Chinese economy and investment space for our international clientele.”