July 2016

OPINION: Beware of stereotypes

Plane wingAssuming that all Asians like a gamble could prove a costly mistake, says our correspondent in Asia. 

“Asians are natural gamblers.” Have you heard such a claim? To those of us who are not actually from Asia, this statement has a sort of instinctive appeal. Perhaps we imagine smoky rooms filled with the clatter of Mahjong tiles, or maybe we think of horse racing in Hong Kong or casinos in Macau.

The claim must seem particularly plausible to fund managers in the Asia-Pacific region. Holding periods for funds in much of Asia are shorter than in the US and Europe. Turnover of shares by retail investors on the stock market tends to be more rapid, too. Meanwhile, many high-net-worth investors in Asia employ leverage to amplify their returns, as shown by the popularity of leveraged exchange-traded funds, which have been traded for some years in Korea, Japan and Taiwan and were recently approved for sale in Hong Kong. What does this say except that Asian investors love to gamble?

Beware of generalisations. Yes, some Asian investors buy into risky funds, but they do so with ‘play money’, that is, money they can afford to lose. The savings that matter – that will pay for the children’s education, for instance – are often not invested in funds at all, but sit in bank deposits, risking little and yielding little.

And there is plenty of money saved up. Chinese people together have savings worth half China’s GDP, according to the World Bank. Though understandable in a country without a welfare state to speak of, this is hardly the mark of a nation prone to wild risk-taking. Indeed, leaving aside Asian investors for a moment, it is just as plausible to say Americans and Europeans are the gamblers. Many individuals in these ‘rich’ countries are personally indebted, without adequate pensions, and some have mortgages that are liable to become highly costly if interest rates rise.

The problem here is that measuring the savings behaviour of Asian investors against those in the West is like comparing potatoes with pak choi. Due to history and politics, Americans and Europeans have been investing in funds for longer than their peers in Asia. There is good reason to think that as more Asian money migrates from low-yielding bank deposits into funds, the investment behaviour of Asians will, on average, more and more resemble that of people elsewhere in the world.

This, by the way, is a huge opportunity. The example of America’s 401k system shows what can happen when regulatory change draws a large number of new investors into collective savings pools. The US asset management industry, which had been around for decades, exploded in the 1980s thanks to 401k. As Asian governments consider radical action to solve the demographic problems of an ageing population, Asia’s pensions industry is poised to boom.

But note that these potential new Asian clients can hardly be called ‘gamblers’. Many of them will probably take little interest in the stock market. We are talking here about the average woman or man in the street who will either find themselves auto-enrolled in pensions schemes at work or will decide on the advice of friends or relatives to buy a few funds with their retirement money. Those asset managers that are hypnotised by the stereotype of the Asian gambler are liable to miss out on the real opportunity. 

It’s not about the odd rich entrepreneur hazarding a bet with a few million renminbi he or she can afford to lose, it’s about the millions of people in Asia’s growing middle class who have money to save and want a modest, regular, long-term return.

©2016 funds global asia

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