Return disconnect for Wealth Connect

It was incredible to read the findings that mainlanders in the Greater Bay Area are expecting a return of 13 percent on average via the cross-border Wealth Management Connect scheme designed to enable residents in Hong Kong, Macau and nine Guangdong cities to invest in each other's financial...

Mary Ma

Friday, June 25, 2021

It was incredible to read the findings that mainlanders in the Greater Bay Area are expecting a return of 13 percent on average via the cross-border Wealth Management Connect scheme designed to enable residents in Hong Kong, Macau and nine Guangdong cities to invest in each other's financial products.

Naturally, major financial institutions like HSBC, Standard Chartered and Bank of China are more than delighted because the new scheme could bring them an annual windfall of HK$3.6 billion for the services their sector is ramping up to provide.

The figures are upbeat - probably too upbeat to take for granted.

First, 13 is an ominous number in the West -although it reads just the opposite in the Cantonese dialect.

It's plausible that even those in the Hong Kong Investment Funds Association were taken aback when they processed the data collected from the April 22-May 7 survey that polled over 1,000 investors in Guangzhou, Shenzhen, Foshan and Zhuhai.

I have little doubt that Hongkongers would like to bag similar returns too.

Except for some IPOs that burst upward on their first day of trading, Hong Kong stocks have been mostly lukewarm during the pandemic.

If the Dow Jones Industrial Average, for instance, has rebounded to a new high about 10 percent above its tip prior to the pandemic crash, the Hang Seng Index has been lagging behind in performance, having recovered only most of the ground lost after the pandemic plunge.

Will Greater Bay Area mainlanders be disappointed if they fail to make so much in returns via the wealth connect scheme?

As the service providers, HSBC, Standard Chartered, Bank of China and their financial peers have to ask themselves if they are prepared to secure their rich Greater Bay Area clients yields averaging no less than 13 percent.

If their answer is affirmative, I have little doubt that they should offer the same treat to their Hong Kong customers too, as a return of 13 percent would be too attractive for serious and amateur investors alike to turn down.

To be frank, 13 percent is unrealistic. If this were the norm in Shenzhen and Shanghai to gamble on exponential growth in personal wealth, it certainly is not the norm here.

Nonetheless, the confidence displayed by the mainland investors in the survey was overwhelming. Suddenly, it's discovered that there are so many wealthy individuals in the Guangdong cities and not just in Shanghai and Beijing.

Unfortunately, the question is both tough and serious: if the Hong Kong financial market cannot offer these mainland big spenders 13 percent or more in returns, will they still choose to invest in the SAR's wealth products through the connect scheme?

Would they prefer to keep their investment in the mainland rather than going south?

In other words, will the SAR still be attractive to them if it can't produce as high yields?

As said, the wealth connect program also allows Hongkongers to invest in mainland wealth products.

It will be interesting to find out how much return Hongkongers will expect from mainland financial products.