The China Banking Association will qualify the first batch of home-trained wealth managers this month, unleashing some three million bankers, accountants and financial consultants on an increasingly moneyed-up population.
It is widely documented that China has US$1.96 trillion in domestic savings; the depressingly few places this money can be invested is also well known.
Apart from low interest-earning bank deposits, domestic shares or debentures issued by big banks and reliable state owned enterprises, the individual investor’s options are severely limited.
According to a survey by McKinsey & Company there are 30 million households with annual incomes above US$4,300, not a lot, but 4% of them, or 1.2 million, have deposits of US$100,000. And the numbers are growing.
As an industry, wealth management has been underexploited. Banks and investment houses have sought to offer some limited wealth management advice but they cannot compete with the more evolved and versatile services offered overseas.
At the same time, the industry is nowhere near sophisticated enough to satisfy the needs of many of the foreigners working, living or studying in China – especially investment savvy professionals with hefty salaries and generous expatriate packages.
Traditionally, this very specialized group has invested abroad because China’s currency restrictions are seen to make moving money out of the country more trouble than it is worth.
The restrictions also apply to the growing number of Chinese with money to invest and no place to do it. More than that, Chinese nationals have had little access to wealth management advice because foreign companies have been restricted from offering these services.
Investment company UBS, for example, would not even discuss the issue, saying that Chinese can use the company’s services overseas but not in the mainland.
For now, expatriates represent a highly concentrated market for large foreign companies or boutique firms that can offer investment services or advice.
Lowes Wealth Mangement, for example, targets this very narrow group of clients. The start-up investment company has a representative office in Beijing to service a small pool of almost 20 customers – all foreigners – that put up US$150,000 or more to be invested abroad.
Lowes has an office in Beijing but the company’s investments are abroad and the funds are channeled through London.
"I wouldn’t say that we are operating in the Chinese market but we (have an office) in China," said Stuart Christie of Lowes. "We are making wealthy people wealthier."
The company does not focus on a specific sector or industry but rather analyzes individual stocks, identifying potential targets using a value investment approach. It maintains a portfolio of around 60 stocks with a minimum market capitalization of US$500 million.
Its research intensive approach has paid off. Since its October 2005 launch, the company has seen growth of 38%.
As niche as Lowes’ target market may seem, the company sees much potential for expansion. It already has plans in place to open new offices in Shanghai and Guangzhou by the end of this year or early in 2007.
Although it may not currently be able to offer its services to Chinese nationals, its growth plans are riding the advancing tide of expatriates in China, and that tide is not likely to recede any time soon.