Beijing’s move to allow cross-border trade settlement in renminbi in Hong Kong could accelerate the growth of wealth management services to rich mainlanders and products denominated in the Chinese currency.
This is an exciting prospect for industry players such as Cindy Fu, general manager for wealth management at Standard Chartered Bank in Hong Kong.
“Chinese regulators have started the settlements, and if they open up more by relaxing the limitations on daily conversions and allowing more products to be transacted in renminbi, it would certainly help,” she said.
Hong Kong has a limited number of renminbi products available at present such as deposits and offshore bonds, which offer meagre returns. Investors are also constrained from taking up these instruments by a daily cap on renminbi conversion set at Rmb20,000 (US$2,900).
But wealth managers are hopeful that liberalisation can come quickly. Observers believe that Chinese regulators could expand the conversion rate within the next six-to-twelve months and are also hopeful that approvals to sell products such as insurance and structured products denominated in renminbi will also follow.
If Chinese regulators accelerate these moves, it would strengthen Hong Kong’s claim to be Asia’s premier wealth management hub, a mantle that Singapore also craves.
China does not have a mature private banking industry and many of its wealthiest citizens choose to make investments in Hong Kong. Industry observers believe that if more products can be denominated in renminbi, it would be a significant boost to Hong Kong’s private banking industry.
Julius Baer is among those private banks positioning itself to capture more business from China and also readying itself for the launch of renminbi-related business to sophisticated investors. It has hired senior Chinese-speaking private bankers to tap into this wealth, most recently managing director and senior adviser Alfred Tsai from Merrill Lynch.
“The amount of wealth coming out of China is growing at such a rapid pace and the demand for renminbi products continues to accelerate,” says Kenny Ho, head of products for Asia-Pacific at Julius Baer. “It’s hard to quantify how fast the renminbi investment products market will grow, but it’s likely to be exponential.”