Wealthy Hongkongers seek security in diversification
Hong Kong investors are fond of Hong Kong equities, but how did that strategy play out in August 1998, as the Asian financial crisis was hitting hardest? The Hang Seng Index dropped 60 per cent over 12 months. In the same period, average housing prices dropped 48 per cent (according to the benchmark CentaCity Index) and joblessness increased 130 per cent.
In other words, people took serious hits on equity investments at the same time the value of their home was sinking and their jobs were at risk.
It was an event that argued strongly in favour of investment diversification - putting one's money into a range of assets not strongly linked with income and employment.
A recent Franklin Templeton Global Investor Sentiment Survey showed that 88 per cent of Hong Kong respondents were open to investing outside local markets. Preferred markets included Brazil, Russia and India, with equity the top investment choice. Real estate was perceived to be the highest performing asset class.
Lok Yim, head of north Asia, Deutsche Bank Private Wealth Management, says global investing by Asians is less to do with diversification or asset allocation and more of a case of: Am I missing an opportunity? But Benjamin Yeo, Barclays Wealth's head of research, economics and strategy for Asia, says even risk-taking investors make conservative choices when investing abroad, even in big, well-known markets such as the United States.
'Most investors may make their higher risk investments in small-cap equities in their home market where they are closer to what is going on,' says Yeo. He says property, especially British property, is very much on the radar of investors looking outside Asia. A weak pound and sluggish British property prices are attractive.
Many buyers focus on central London and the Docklands new-build market, with Asians accounting for nearly 60 per cent of buyers from last November to May.
Adam Tejpaul, head of investments at JP Morgan Private Bank in Asia, says investors are looking at US assets that make them feel comfortable, such as high dividend stocks and investment-grade bonds. In Europe, it's distressed real estate.