Thursday 28 Mar 2024
By
main news image

Will the formation of the Asean Economic Community change the wealth management space in the region? In the first of a three-part series, Personal Wealth looks at the growth of wealth in the region.

 

THE business of wealth management typically elicits associations with hubs such as Switzerland or Hong Kong. Singapore is rising quickly on the scene, but few regard Asean as a significant player in this space. 

 

The establishment of the Asean Economic Community (AEC) at the end of this year, however, could change a thing or two.

The AEC will see the 10 member nations of Asean —Malaysia, Singapore, the Philippines, Indonesia, Thailand, Brunei, Myanmar, Laos, Cambodia and Vietnam — form a competitive economic region with equitable economic development that is fully integrated into the global economy. 

The five core elements of the AEC framework are the freer flow of goods, services, investment, capital and skilled labour within the region. This will encourage a more open market and facilitate a single market and production base.

With Malaysia playing the leadership role as this year’s Asean chair, Personal Wealth speaks to local players to find out their plans, challenges and opportunities in growing the region’s wealth management segment.

Growth of wealth in the region

The AEC will see the gradual removal of restrictions within the banking, insurance and investment industries to achieve free flow of financial services by 2020. 

The move will encourage the growth of wealth in the region, and is anticipated to attract a large number of the world’s high net worth individuals (HNWIs) and ultra-HNWIs.

“The level of wealth in Asia-Pacific will surpass that of North America in no time, especially in populous regions such as China, India and Indonesia. Asean, being a very integral part of Asia-Pacific, will continue to grow,” says Alvin Lee, managing director of private wealth at Malayan Banking Bhd (Maybank).

“Asean has a population of 630 million, a literate workforce and is rich in natural resources. These nations have very complementing economies,” he adds. 

“For example, you have Singapore, which is strong in services, financials and high value-add industries. Myanmar, which is up and coming, has [such resources as] timber and rare earth while Indonesia, by the sheer size of its population, will be the fastest growing Asean country. It is touted to be the third or fourth largest economy in the world.”

According to the Asia-Pacific Wealth Report 2014, the region’s population of HNWIs grew 17% to 4.3 million last year, while wealth rose 18% to US$14.2 trillion (RM51.8 trillion). In Malaysia, there were 65,840 HNWIs, while wealth stood at US$419.6 billion. 

Lee says wealth in Asia-Pacific has grown at a compound rate of about 9% over the last five years, and Asean’s wealth management market is estimated at US$2 trillion, of which about US$1.5 trillion is invested domestically.

WealthInsight Intelligence Center in London reported that Malaysian wealth grew an impressive 59.6% between 2009 and 2013.

Freer capital and investment flows within Asean will mean fewer restrictions and more investment options. This is good news for the wealth management industry. CIMB-Principal Asset Management Bhd CEO Munirah Khairuddin cites the European Union’s Undertakings for Collective Investment in Transferable Securities (Ucits) market as an example, as it allows collective investment schemes to operate freely throughout the EU on the basis of a single authorisation from one member state.

“Look at the Ucits market in Europe. In terms of wealth management, it is so developed today. This is a model that other markets (such as Asean) should seek to have,” she says.

While the AEC is expected to attract a fair share of HNWIs, some players anticipate the bulk of growth in the wealth management landscape to come from the middle-income group. This is indicative of the increase in total investment assets of the Employees Provident Fund. As at Dec 31 last year, the EPF had RM636.53 billion in total investment assets — an increase of almost 8% from the previous year. 
Munirah believes the increase was due to a higher number of middle-income earners. “The bulk of the wealth will come from the growing number of private wealth [HNWIs] within Asean as well as middle-income earners. The middle-income group will contribute a lot to the growth of Asean wealth.”

The implementation of the AEC will create a more competitive financial landscape across Asean, as investors will have unrestricted access to funds from the region. “Malaysian investors will be able to invest in funds in other Asean markets, and vice versa, with fewer restrictions on capital flows, facilitated by the rationalisation of investment rules,” says RHB Bank Bhd executive director of retail banking U Chen Hock in an email interview. 

With the AEC comes the free flow of skilled labour, giving investors better access to relationship managers with experience in other more mature Asean markets, such as Singapore. “The landscape will be more competitive with access to Asean products for benchmarking, while Asean investment advisory skill sets will be accessible by both regional and non-regional players,” he says. 

While more competition might put pressure on wealth management players, for Munirah, this can only be a good thing as the more sophisticated the market is and the stiffer the competition, the better the industry will be. 

“Only the best players will survive because they have to make the cut. I am not talking about just fund performances, but the business as a whole,” she says.

However, she notes that the more mature markets, such as Singapore, which is a private banking hub, will draw much attention in terms of private wealth. “Singaporean bankers are more familiar with the assets in Asean. Naturally, the wealth segment will be more fluid there.”
 

 

This article first appeared in Personal Wealth, a section of The Edge Malaysia, on March 30 - April 5, 2015.

 

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.

      Print
      Text Size
      Share