Landmark study compares investment behaviour and portfolio allocation among private banking clients in Switzerland, Hong Kong and Singapore.
Hong Kong investors have the highest risk appetite and investment knowledge, while Singaporeans are the most conservative in their investment approach, according to an LGT Group-sponsored study of high net worth individuals in Hong Kong, Singapore and Switzerland released today.
Among the LGT Private Banking Report 2012/2013’s findings is that 58 percent of high net worth individuals interviewed in Hong Kong expect a return of 10 percent or more per annum over the next five years, while 43 percent in Singapore and only 6 percent in Switzerland have such high expectations. One sign of a more conservative approach in Singapore is that investors there hold half their investable assets in cash, compared with one-third in Hong Kong and around a quarter in Switzerland. The LGT study was led by Prof. Dr. Teodoro D. Cocca, Professor for Asset Management at the Johannes Kepler University in Linz and is based on interviews of 505 high net worth individuals in the three markets in 2012. Analysis of the results was carried out independently by Prof. Dr. Cocca; Annie Koh, Associate Professor of Finance at the Singapore Management University and Academic Director of the Busi-ness Families Institute and the Financial Training Institute; and Kalok Chan, Professor of Finance and Head of the Finance Department at the Hong Kong University of Science and Technology. "The higher return expectation in Hong Kong reflects investors’ confidence in their investment skills and that they might overestimate their ability in stock picking or choosing the best performing asset classes," Prof. Chan said.
In addition to a relatively high allocation of cash in Singapore portfolios, commodities, gold and other precious metals are also substantially more favoured in Singapore with 28 percent of assets excluding cash, compared with 14 percent in Hong Kong and 8 percent in Switzerland. "Cash is an asset class that risk-averse Singaporean investors usually perceive as a safe and attractive investment with minimal risks, providing generally high liquidity and akin to a safety net in these uncertain times," Prof. Koh said.
Cash most favoured, Europe least favoured asset class
Cash was, in fact, the largest component of portfolios in all three markets. On the other hand, for Hong Kong and Singapore investors, European blue chip equities and EUR bonds were least in favour when risk and anticipated return were considered, the study found.
Insufficient portfolio diversification across all markets
The study also showed low diversification in all markets, with Singapore portfolios rating the lowest. In Singapore, over two-thirds of portfolios – 67 percent – had insufficient diversification, i.e. less than four asset classes, compared with 53 percent in Switzerland and 45 percent in Hong Kong. However, Hong Kong portfolios had comparatively higher average diversification. Investments were in an average of 3.5 asset classes, with 17 percent investing in two or fewer asset classes and 56 percent in at least four asset classes.
In Hong Kong, the proportion of interviewees who said that they have a very good knowledge of investment matters was 30 percent, higher than the 7 percent found in Singapore and 16 percent in Switzerland. "The entrepreneurial orientation in Hong Kong could be seen to be a way of explaining the high level of readiness to assume risk," Prof. Cocca said.
Hong Kong investors more independent
Hong Kong investors were also found to be the most independent in their decision making, with a majority, 55 percent, reporting that they make investments without consulting professional advisors, compared with a third, or 33 percent, in Singapore and 39 percent in Switzerland.