Asia's wealthiest are seeking safer assets to ride out the current economic downturn and doubling down on sustainability investments, according to a Bank Lombard Odier & Co. Ltd. study.
High net worth individuals, defined as those with at least $1 million in investable assets, in Asia-Pacific view inflation as the biggest risk to the global economy, followed by geopolitics, a survey conducted in May and June by the Swiss private bank found.
"We are in the midst of a fundamental shift in our global economy pegged with an outlook that is uncertain and gloomy," Vincent Magnenat, limited partner, global head of strategic alliances and Asia regional head at Lombard Odier, said at a Sept. 7 call with journalists. "[Asia-Pacific] investors are becoming more conservative in their portfolio construction and are diverting to safer alternative and private assets, whilst increasingly diversifying beyond their local markets."
Russia's invasion of Ukraine in February and the following surge in inflation has roiled global equity markets, sending the S&P 500 index about 18% lower since the start of the year, and by as much as 20% lower in June. The volatility is likely to continue as most global central banks tighten their monetary policy to curb decades-high inflation.
Half of the nearly 450 respondents in Lombard Odier's survey were worried about market volatility hurting the performance of their investments, and 77% listed inflation as the biggest risk to the global economy.
Diversification is key
Most respondents believe diversification is still key, but many are worried that diversification alone will not work. Risk assessment and management, and having a minimum level of risk visibility, are key areas that investors want to address, Lombard Odier said in a statement detailing the results of the survey, the third of such annual studies by the bank.
Lombard Odier also favors diversification across a range of strategies, from private equity and debt to real estate and infrastructure investments, especially as the market for these strategies deepens, according to the report.
Amid uncertain markets, clients increasingly value personal relationships with their banks, with over 82% of the respondents saying investment advice should be delivered via their bankers and not through digital automation.
"During the pandemic, we always wanted to be online, and we thought that would be the new way of working. The reality is it's not, especially in business where it's all about trust," Magnenat said. Clients are also growing increasingly reliant on local brokers. For instance, Thai clients look to Kasikornbank PCL, Lombard Odier's Thailand partner, for investing both locally and globally, instead of relying on their Singapore banker to fly in, Magnenat said.
Family services and restructuring, in particular, are difficult to automate and require strong personal relationships between clients and bankers, said Jean-François Aboulker, Asia head of Lombard Odier's ultra high net worth individuals offering. The region, which has the highest concentration of family-run businesses, is undergoing potentially the biggest wave of wealth transfer in history, attracting bankers to help facilitate succession and transfer to the next generation.
The region's wealthy have also shown growing interest in sustainability investments, although almost half of those surveyed said such products make less than 20% of their portfolios. Clients now view sustainability from a risk and return perspective, and a banker's ability to explain a company's sustainable path in a forward-looking manner may help clients increase the proportion of their sustainable investments, according to the report.
