Asia Monitor May 2019

Notable Developments: Japan

Emperor Naruhito, the 126th ruler of the Chrysanthemum Throne became Japan’s new emperor on the 1st of May 2019 after the abdication of his father, Emperor Akihito, at the end of April. Emperor Akihito was the first Japanese monarch in over 200 years to abdicate the throne citing health reasons. It is expected that Oxford-educated Emperor Naruhito will have his own style of ruling drawing upon his experience of studying in Britain and interacting with the British royal family. Going forward, we may expect to see the Imperial House of Japan becoming more in touch with its subjects and developing a stronger international stature under the new emperor.

China and the United Kingdom

Whilst the UK is facing internal government battles regarding its decision to allow Huawei to develop parts of Britain’s 5G network capabilities, this has not stopped the UK Government’s Chancellor of the Exchequer, Philip Hammond, from pursuing stronger economic ties with China. Mr. Hammond’s attendance at China’s annual Belt and Road Summit in April 2019 came at a critical juncture following a dismal attempt to secure a Brexit deal. The UK is now seeking to build trade relations outside of the European Union, therefore they see China as a more substantial trading partner. China has also faced criticism regarding its debt-trap diplomacy and has been accused of espionage by the United States, which has deterred potential trade partners from partaking in trade deals with Beijing. As a result, the Belt and Road Summit came at an opportune time with China and the UK relying on one another to further their interests.

Focus Industry: Wealth in Asia

Asia’s exceptional growth rates over the last 20 years has created more than 6.2MM millionaires who hold USD21.6 Trillion in assets across the region; a significant amount of this wealth is tied up in business assets. The majority of this wealth has been created in China, India and Hong Kong. China, for example, is home to 26 of the world’s 30 fastest growing Ultra-High Net Worth (“UHNW”) cities. (An individual must have USD30.0MM or more in assets to be considered a UHNW individual.) Wealth creation is not only confined to the aforementioned countries but has also taken place in Bangladesh, Pakistan and Vietnam. For instance, between 2012 and 2017, Bangladesh was the world’s fastest UHNW growing country according to Wealth-X.

As the region has experienced a significant increase in wealth, we have increasingly seen North American and European financial services companies target this lucrative market with private wealth management solutions. Over the last three years, Credit Suisse has changed the strategy of its core business in Asia from investment banking to private wealth management. This is because wealth management is “more attractive and less capital intensive” according to Tidjane Thiam, Credit Suisse’s Chief Executive. UBS, the world’s largest private wealth manager, plans to retain its position by strengthening its capabilities in China, Japan and Taiwan. HSBC is shifting its core geographical focus from Greater China to Southeast Asia as it plans to bolster its private wealth division in the region to take advantage of the growing wealth in Asia.

Investment Manager Commentary

As China attempts to increase its global standing through investing in developing countries, it is facing challenges in receiving repayment; this is due to the high interest rate terms agreed between the countries. Analysts have estimated that c.24 countries are struggling with debt repayments and that 8 of these countries are close to default. China has been opaque on the international stage regarding financing arrangements and is now facing a backlash from the international community over its debt-trap diplomacy. (Debt-trap diplomacy is defined as one country extending excessive credit to a borrower with the intention of obtaining favourable concessions from the debtor when they are unable to repay the borrowed amount). At the recent Belt and Road Summit, President Xi Jinping indicated that projects under this initiative would become more sustainable with regards to lending practices but only time will tell if this is simply rhetoric.

Contact Details: Harmony Capital Investors Limited, Room 811-817, 8/F, Bank of America Tower 12 Harcourt Road, Central, Hong Kong

Email: hcil-marketingteam@harmonycapitalinvestors.com


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