Private Banking Team
Caproasia.com | The leading source of data, research, information & resource for financial professionals, investment managers, professional investors, family offices & advisors to institutions, billionaires, UHNWs & HNWs. Covering capital markets, investments and private wealth in Asia. How do you invest $3 million to $300 million? How do you manage $20 million to $3 billion of assets? Caproasia - Learn more



This site is for accredited investors, professional investors, investment managers and financial professionals only. You should have assets around $3 million to $300 million or managing $20 million to $3 billion.










8 Reasons Why Low-Risks Portfolios Do Not Work Effectively in Asia

Asia doesn’t have a history of wealth management and a range of investment options. Since World War II,  Wealth Management and Investments for much of the population in Asia centers around:

  • Salary & Savings
  • Property Investments
  • Insurance and Savings Products
  • Stock Marketris

Countries which created an early bond market by selling War Bonds during World War I had a vastly bond-educated population.

  • Austria and Hungary for World War I
  • Canada renamed Victory Bonds after World War I
  • Germany Kriegsanleihe (Public Bonds) for World War I
  • United Kingdom Treasuries / War Bonds for World War I
  • United States Liberty Bonds for World War I

With bonds and money market instruments playing an important role in low-risks portfolio, we look at why low-risks portfolio does not work effectively in Asia:



- Article continues below -



Sign Up
Basic Member: $5 Monthly | $60 Yearly
Newsletter Daily 2 pm (Promo): $20 Monthly | $180 Yearly (FP: $680)


The 2024 Investment Day
5th June Hong Kong | 12th June Singapore

Private Equity, Hedge Funds, Boutique Funds, Private Markets & more. Taking place on 5th June 2024 in Hong Kong, 12th June 2024 in Singapore.
Visit | Register here


The 2024 Family Office Summit
16th Oct Hong Kong | 23rd Oct Singapore

Join 80 single family offices & family office professionals in Hong Kong & Singapore
Links: 2024 Family Office Summit | Register here





 

No. 1 Asia Grew Without a Debt Market

HONGKONG -SEPTEMBER 8 2013:The first Apple Store in Hong Kong, being the 100th overseas store outside the USA opened on September 24, 2011

 

With Asia developing at a high growth rate since World War II, foreign direct investments and demand for loans which translate into high savings interest rate created a lesser need for a bond market.  Thus, even with the capital market infrastructure in place, the bond market

  • in Asia remains largely institutional based
  • remains dysfunctional due to to a fragmented market (w/o a single unified debt leader / currency)
  • have illiquid pricing and lack of flow of information

This means an important asset class alongside equity, which drives the financial market liquidity and capital allocation has little importance in Asia.  Investing into bonds faces all the risks of an underdeveloped financial product.

 

No. 2 The Lost Generation Without Knowledge of Debt

Three-Generation Family
Three-Generation Family

Getting the teenager or young adult to put money into savings account teaches the habit of savings and prudence.  Getting them to buy bonds which lends money to corporates and government teaches them judgements, businesses and global economics.  Most importantly, to decide when to take more risks (equity) and when to take less risks (bonds or cash).

Without the knowledge of what really is debt, the general population looks at debts only as loans for housing, cars, education  or positive income generating investments (Yield Differential) as debts.

  • Property Rental Income
  • Stock Dividends

This means much of the population will not understand the basic mechanics of bonds, as an investment and asset class in their life.  Without their trust and active participation, the bonds and bond prices remains driven by top-down decisions or institutional trading. Issuers have no incentives to build trust with the population, but will channel time to build institutional relationships.

 

No. 3 The Lost-Multiplier Effect 

Cash on Hand
Cash on Hand

Banks and deposits play a critical role to a properly functioning domestic financial market and economy for borrowings and lending, funded by excess cash by the population.

Systemic risks of an individual or small community is being covered by insurance, another important financial instrument.  Like the banks, insurance helps the economy by:

  • Shifting large financial risks from governments to individuals
  • Pooling of risks by getting everyone to contribute a small amount
  • Balancing the insurance budget by ensuring the payout rate is lower than the contribution rate
  • Excess funds are invested for longer term to generate surplus to lower cost of distribution and manage fluctuating insurance risks over time

The transfer of risks to the individuals means the individuals, communities and companies make decisions based on risks, returns and profitability.  This creates collective quick decision making, which keeps the system flowing efficiently.  The collective participation results in a higher multiplier effect or turnover of money.

Other than a significant loss in capital market participation, Asia also loses a quick “invisible” monetary and economic growth or recovery tool.  This means analysis and allocation of assets into lower-risks investments, becomes a mere exercise.

 

No. 4 Increasing the Cost of Equity

Yield Curve
Yield Curve

Without the opportunity to tap onto debts / bonds to fund companies expansion and business growth, businesses, companies and governments have to tap onto expensive capital in equity.

  • The missing bond market means equity cost is inflated
  • Returns on equity is expected to be higher (since the only option is equity)
  • Risks on equity is expected to be higher (there is little option for loans or bond market)
  • Institutions refusal to participate in bonds means individuals have no opportunity to participate

The increase in cost of equity means a drop in wide-spread risk-taking within Asia.  This indirectly affects the efficient market pricing of bonds, turning it into a volatile investments:

  • During less risky times, the pricing and risks trade close to deposits
  • During risky times, the pricing and risks trade close to equities

 

No. 5 Intervention or Influence

Singapore Early Development
Singapore Early Development

Asia bond markets faces constant intervention or influence, partly due to developing of key economic infrastructures being built by state-owned enterprises.  In the early stages, such interventions and influences provide investors and people confidence in their sustainability and well-being.

As the market moves into a private-driven economy and more open capital market activities, intervention and influence causes mis-pricing in risks and resulting pricing.

This creates uncertainties, especially in bond prices where the prices should be relatively stable and volatile over time, being affected occasionally by mainly credit risks.

 

No. 6 More Capital & Systemic Risks In Asia

Asia faces many more risks due to the underdevelopment of a capital market.  This creates more risks on capital controls, currency risk, hot funds flows which inevitably causes fluctuation in money market funding and short-duration bond prices.

 

No. 7 No Bill Gross, No PIMCO

Bill Gross
Bill Gross

A rising star or equal of Bill Gross or PIMCO, one of the most well-known name in bonds and fixed income fund management, is non-existent in Asia.

Without leadership or wider participation in bonds or fixed income, this asset class remains a passive investment.  Investments into bonds or money market funds are driven by a “theoretical need basis”, based upon traditional & modern portfolio theory.

The case for bonds allocation becomes fundamentally flawed, with Asian investors participating in United States Bonds or European Bonds, bearing additional and irrelevant currency and systemic risks.

 

No. 8 The Truth About Low-Risks Portfolio

Portfolio Allocation
Portfolio Allocation

The Theoretical Low-Risks Portfolio allocation looks like this:

  • 20% Equities
  • 70% Bonds
  • 10% Money Market

While the actual Portfolio allocation looks like this:

  • 60% Equities or Real Estate (Net Equity)
  • 10% Bond Funds
  • 30% Cash

 

Do you think Low-Risks Portfolios are working effectively in Asia?

 

Popular Links:

 

Related Articles:

 




Managing $20 million to $3 billion. Investing $3 million to $300 million.
For Investment Managers, Hedge Funds, Boutique Funds, Private Equity, Venture Capital, Professional Investors, Family Offices, Private Bankers & Advisors, sign up today. Subscribe to Caproasia and receive the latest news, data, insights & reports, events & programs daily at 2 pm.

Join Events & Find Services
Join Investments, Private Wealth, Family Office events in Hong Kong, Singapore, Asia-wide. Find hard-to-find $3 million to $300 million financial & investment services at The Financial Centre | TFC. Find financial, investment, private wealth, family office, real estate, luxury investments, citizenship, law firms & more.  List hard-to-find financial & private wealth services.

Have a product launch? Promote a product or service? List your service at The Financial Centre | TFC. Join interviews & editorial and be featured on Caproasia.com or join Investments, Private Wealth, Family Office events. Contact us at [email protected] or [email protected]

Caproasia.com | The leading source of data, research, information & resource for financial professionals, investment managers, professional investors, family offices & advisors to institutions, billionaires, UHNWs & HNWs. Covering capital markets, investments and private wealth in Asia. How do you invest $3 million to $300 million? How do you manage $20 million to $3 billion of assets?



Quick Links


2021 Data Release
2020 List of Private Banks in Hong Kong
2020 List of Private Banks in Singapore
2020 Top 10 Largest Family Office
2020 Top 10 Largest Multi-Family Offices
2020 Report: Hong Kong Private Banks & Asset Mgmt - $4.49 Trillion
2020 Report: Singapore Asset Mgmt - $3.48 Trillion AUM


For Investors | Professionals | Executives
Latest data, reports, insights, news, events & programs
Everyday at 2 pm
Direct to your inbox
Save 2 to 8 hours per week. Organised for success

Register Below

For CEOs, Heads, Senior Management, Market Heads, Desk Heads, Financial Professionals, Investment Managers, Asset Managers, Fund Managers, Hedge Funds, Boutique Funds, Analysts, Advisors, Wealth Managers, Private Bankers, Family Offices, Investment Bankers, Private Equity, Institutional Investors, Professional Investors

Get Ahead in 60 Seconds. Join 10,000 +
Save 2 to 8 hours weekly. Organised for Success.

Sign Up / Register


    InvestorProfessionalFamily OfficeExecutive


    SubscriptionMembershipEvents


    Professional InvestorPrivate WealthFamily OfficePrivate BankingWealth ManagementInvestmentsAlternativesPrivate MarketsCapital MarketsESG & SICEO & EntrepreneursTax, Legal & RisksHNW & UHNWs Insights










    Web links may be disabled on mobile for security.
    Please click on desktop.










    Caproasia Users

    • Manage $20 million to $3 billion of assets
    • Invest $3 million to $300 million
    • Advise institutions, billionaires, UHNWs & HNWs

    Caproasia Platforms | 11,000 Investors & Advisors

    Monthly Roundtable & Networking

    Family Office Programs

    The 2024 Investment Day

    • March 2024 - Hong Kong
    • March 2024 - Singapore
    • June 2024 - Hong Kong
    • June 2024 - Singapore
    • Sept 2024 - Hong Kong
    • Sept 2024 - Singapore
    • Visit: The Investment Day | Register: Click here

    Caproasia Summits

    Contact Us

    For Enquiries, Membership
    [email protected], [email protected]

    For Listing, Subscription
    [email protected], [email protected]

    For Press Release, send to:
    [email protected]

    For Events & Webinars
    [email protected]

    For Media Kit, Advertising, Sponsorships, Partnerships
    [email protected]

    For Research, Data, Surveys, Reports
    [email protected]

    For General Enquiries
    [email protected]





    Caproasia | Driving the future of Asia
    a financial information technology co.
    since 2014




    Previous articleBest Videos of Brexit in 2016
    Next articleList of Sovereign Wealth Funds 2016
    Caproasia.com covering capital markets, investments and private wealth in Asia. Our users manage, advise & invest $25 trillion assets in Asia