Insight archive for Ben Hung | Standard Chartered

The sky’s the limit for the emerging affluent

Ben Hung — Mon, 29 Oct 2018 01:34:12 +0000

Can someone achieve a better life for themselves than their parents enjoyed? Whether they do is a question of social mobility, a key issue in countries around the world. Here there is a contrast between East and West – while social mobility is slowing in the West, across our markets in Asia, Africa and the Middle East the people we have identified as the 'emerging affluent' are enjoying upward social mobility.

Their wealth and social status have moved upwards beyond that of their parents and our latest study provides new insights into this level of social mobility as well as the ambitions the emerging affluent have in life. We surveyed 11,000 emerging affluent consumers and found that 59% are enjoying social mobility. India and China had the highest figures, where more than six in 10 (67%) are experiencing upward social mobility.

"Jane, a client of ours, feels like she’s in a better position financially than her parents were when she was growing up"

Jane Ngambona, a client living in Nairobi, is a prime example. She pursued higher education – an opportunity her parents didn’t have – and now has a stable job working as a finance officer for a private equity firm. She rents a two-bedroom house and has bought a plot of land on which to one day build a home. She saves for her retirement, but also likes to travel and visit family in Europe and America. She feels like she’s in a better position financially than her parents were when she was growing up – in her words “the sky’s the limit in terms of reaching my life goals.”

Our client Jane enjoys travelling, is optimistic about her future and feels like the sky's the limit in terms of reaching her goals

Scaling the social ladder

And there are people like Jane across the 11 markets we surveyed (China, Hong Kong, India, Indonesia, Kenya, Malaysia, Nigeria, Pakistan, Singapore, South Korea and the UAE).

Across education, employment and housing the emerging affluent are scaling the social ladder and fuelling their expanding economies by outstripping their parents’ success:

85% went to university, compared to half of their fathers and 41% of their mothers
88% of the socially mobile own their home, compared to 78% of their parents
75% of the socially mobile are in management positions or running their own business, compared to 52% of their fathers and 34% of their mothers

Supercharged mobility

We also identified a smaller group (7% of the total) who we found are enjoying supercharged social mobility, ascending further and faster than their peers with dramatic increases in income, education and career success.

Looking to the future, the emerging affluent aspire to build on their success and continue to improve their lives and those of their children. As a group they are confident about their futures and believe that smart financial choices will improve their social status – nearly seven in 10 of the emerging affluent said that managing their finances effectively holds the key to greater social mobility. And across all markets, paying for children’s education was ranked as the most important savings priority.

"42% said that they felt held back in their aspirations by their lack of financial knowledge"

While the emerging affluent are hungry to improve their financial position, a missed opportunity across all markets is a lack of professional guidance – 42% said that they felt held back in their aspirations by their lack of financial knowledge.

An important thing we found in our study was the importance of digital which makes financial products more visible and accessible, allowing users to make more informed decisions quickly and easily: 65% of the emerging affluent said familiarity with digital tools has been vital to their personal success.

We believe the economic power of the emerging affluent represents a significant driver of economic prosperity in some of the world’s most dynamic countries. Their ambition and dynamism are helping to create jobs and wealth across Asia, Africa and the Middle East.

Read the full report for more.

Let us help you reach your life goals

We’re helping clients like Jane through our Premium Banking offering, which has been launched in eight markets, most recently Kenya, and is designed to help consumers like Jane reach their ambitions. Visit your local site for more information

China is changing

Ben Hung — Wed, 21 Oct 2015 07:06:01 +0000

On recent trips to the West, I’ve discovered that the further from China people are, the worse the economy looks.

Having President Xi Jinping in town might lessen the gloom: after his recent US trip, he is visiting Britain this week.

The recent stock-market correction, currency devaluation, and data disappointments have exacerbated concerns about China’s slowdown. We are all impacted by this. Investors in the West seem shaken, and will look to President Xi for explanation and, more importantly, reassurance.

"Recent turmoil should not be mistaken for a drastic worsening of fundamentals"

Real economic activity is slowing in China, and risks remain: the ongoing property-market correction, excess capacity in the manufacturing sector, high debt levels.

However, recent turmoil should not be mistaken for a drastic worsening of fundamentals. If anything, such setbacks have prompted policy makers to give greater priority to reform, and to ease policies more decisively.

Time lag in impact of new policies

We have seen down-payment requirements being reduced for first-time homebuyers. Sales tax on small cars has been halved. Targeted fiscal spending is up 15 per cent in the first eight months of 2015. This is in addition to a more accommodative monetary policy, including five interest rate cuts and three reserve requirement ratio reductions since November last year.

The impact of such easing is yet to be seen. These policies feed through to the real economy with a lag of five to nine months, according to People’s Bank of China researchers.

And inevitably policy makers may not always get it right. Looking back, the stock market policy was unfortunate. Faced with an already frothy market, the government picked an unnecessary fight that was difficult to win. It was nonetheless a valuable lesson for policy makers as they learn how to interact with a more open financial system.

Currency devaluation was necessary

The recent episode of renminbi (RMB) depreciation illustrates another key challenge China faces: the scope for its multiple policy objectives to be misread by the market.

The RMB fixing reform on 11 August was intended to meet the IMF’s call for a more market-driven foreign exchange (FX) regime, increasing the RMB’s eligibility to Special Drawing Rights (SDR) inclusion.

The devaluation was needed to close the onshore spot-fix gap, but many interpreted it as a competitive devaluation to boost growth. What was intended as a positive reform turned into worldwide FX turbulence.

"One senior official told me that the government will continue to press the reform accelerator to the floor unless jobs data show signs of stress"

Could the intention have been better communicated? Certainly. But for an economy of China’s scale to simultaneously transform its domestic market and open up to the rest of the world, the task is enormous and there are bound to be bumps along the way.

One senior official told me that the government will continue to press the reform accelerator to the floor unless jobs data show signs of stress. We should give recognition to such determination as the key is to keep taking the right steps to deliver a more open and sustainable economy.

Market liberalisation has been accelerated

This is hard when cyclical headwinds are strong and market confidence is fragile. So it is encouraging to see China accelerating market liberalisation amidst the recent turbulence. The range of reforms includes allowing foreign public institutions to access onshore interbank FX market, and relaxing the eligibility for RMB cross-border pooling.

Just this past week saw the launch of China International Payment Systems, where multinationals like IKEA were amongst the first to effect payments internationally via the new platform in RMB.

China is evolving and maturing

With more reforms on the way, the world should adjust the way it sees China. It is an economy that is evolving and maturing.

Admittedly, Chinese manufacturers still face the triple whammy of over-capacity, weak end-demand, and rising wages. But Beijing is motivating manufacturers to move up the value chain, boost productivity and manage cost, there will undoubtedly be more casualties.

"The consumer demographics that attracted western countries to invest in China remain compelling"

In fact China’s challenged manufacturers are becoming a less significant part of the story, as the economy shifts towards services and innovation, with the tertiary sector now accounting for roughly half of China’s GDP.

The slowdown in retail sales in China has been significantly impacted by China’s clampdown on corruption. But the consumer demographics that attracted western countries to invest in China more than a decade ago remain compelling.

The government is getting to grips with large but manageable state debts by swapping local government loans for bonds and imposing a ceiling on those governments’ debt levels.

"I see a China that is fast opening up. The process will not be painless. But the West should be constructive participant"

And for every Trans-Pacific Partnership Agreement that is said to hurt China’s long-term competitiveness, there will be a corresponding ‘One Belt One Road’ that promises a boost to trade and investment growth.

Perceptions affect confidence, and I believe the perceptions of China in the West are skewed. I see a China that is fast opening up, a government that is determined to reshape its economy and drive through much-needed and long-ranging reforms.

The process will not be painless, but the West should be constructive participants. With genuine exchange, there are policy areas where China could learn from the West’s insights. After all, a China whose economy is more sustainable, predictable and market-oriented is good for the world.

The renminbi deserves its SDR recognition

Ben Hung — Mon, 08 Jun 2015 06:56:56 +0000

Since Deng Xiaoping embarked on market reforms in the late 1970s, China has evolved from a poor, closed economy to become first the factory of the world and now a country on the cusp of significant economic opening.

This begs the question of how the Chinese currency, the renminbi (RMB), will integrate into the global financial system.

It is a matter of when, not if, the RMB will be included in the International Monetary Fund’s (IMF) Special Drawing Rights (SDR) currency basket. With the five-yearly SDR review due later this year, I think now is a good time.

"To qualify, the RMB needs to be ‘freely usable’, though not necessarily ‘fully convertible’"

The RMB’s inclusion would cement its rising reserve-currency status and accelerate investment in the currency. To qualify, the RMB needs to be ‘freely usable’, though not necessarily ‘fully convertible’. The yen became fully convertible only in 1980 – two years after the IMF determined it to be freely usable.

Sceptics may focus on how far China still has to travel, but instead I would urge the IMF to look at how far it has come.

RMB’s international rise

The RMB is the world’s fifth most-used payment currency, according to SWIFT, and 27 per cent of China’s total goods trade is now settled in RMB.

Onshore, the Shanghai Free Trade Zone spearheads pilot tests for China’s capital account liberalisation, including the ‘two-way RMB sweeping’ programme.

Offshore, RMB centres led by Hong Kong, Singapore and London now provide a wide range of RMB hedging and investment products, plus access to raise capital in the ‘dim sum’ bond market worth a staggering CNY750 billion.

Foreign investors are enjoying increasing access to China’s stock and bond markets, and the RMB foreign exchange market has become considerably deeper and more liquid.

"The RMB is already a recognised currency in the eyes of many central banks"

Also, more than 60 central banks globally have invested in RMB assets, with estimated holdings of over USD100 billion. So the RMB is already a recognised currency in the eyes of many central banks. According to the People’s Bank of China (PBOC), the RMB now ranks seventh in reserve holdings globally.

To me, all this suggests the RMB broadly meets the technical requirements based on the current ‘freely usable’ SDR criterion. It should also count in the RMB’s favour that China is beginning to exert its geopolitical influence on the global stage, starting with its leading role in establishing the Asian Infrastructure Investment Bank.

Does that mean China can’t do more? Of course not.

China still has work to do

For one, China still imposes foreign exchange controls on personal capital transactions. And foreign investors still don’t have sufficient access to Chinese capital markets.

But it would be a mistake to doubt Beijing’s political will to deliver greater convertibility. PBOC Governor Zhou Xiaochuan recently vowed to launch a series of reforms in 2015, including pilots to allow individuals to invest directly overseas –starting with the impending launch of the QDII2 scheme. And just days ago, the mutual recognition of funds between China and Hong Kong was announced.

"A steady, managed emergence into the global economy is good not only for China but for the rest of the world"

Zhou said China aims for ‘managed capital account convertibility’ rather than the traditional concept of ‘full’ or ‘free’ convertibility. This means that China will retain capital account management in some areas, including external debt and short-term speculative capital flows.

While critics may pounce on this as showing lack of commitment, I believe it is a positive. China is pursuing a more sustainable growth model through serious reforms. Doing so while liberalising from a closed to open economy is a tough balancing act and potentially destabilising, if not handled with care.

A steady, managed emergence into the global economy is good not only for China but – but given the country’s sheer size and global influence – for the rest of the world.

The IMF is pivotal

As we continue to hold our collective breaths for the final outcome of the SDR review, the IMF should be aware of the risk that, without legitimacy in the form of SDR inclusion, the global expansion of RMB usage could become increasingly straight-jacketed.

The role of the IMF is not just to foster currency and monetary development, but also to secure financial stability and promote sustainable economic growth. Right now, the IMF is instrumental to China’s further opening – a potential catalyst for its future liberalisation and next phase of economic and financial development.

I believe the RMB deserves its SDR recognition, and the world deserves a sustainable Chinese economy and the continued global emergence of its currency.

This article was first published in South China Morning Post on 08 June 2015

All aboard China’s reform train

Ben Hung — Tue, 22 Apr 2014 23:00:25 +0000

I was surprised to hear the positive news first hand from China’s Premier Li Keqiang at the recent Boao Forum that investors in China and in Hong Kong will soon be able to trade shares on each other’s exchanges.

Coming from the Premier himself, the announcement underscores Beijing’s strong determination for reform.

Shanghai-Hong Kong Stock Connect – or more commonly known as the ‘Through Train Programme’ – is set to be launched in six months, and is a significant step in the opening up of China’s capital account.

"There has been a noticeable step-up in the pace of reform"

Enabling cross-border two-way capital flows, the programme is a long-awaited, missing ingredient in the internationalisation of the renminbi. Up to this point, the liberalisation of China’s currency has primarily been focused on the economy’s current account and in particular on trade and direct investments.

Since last year’s change in leadership, there has been a noticeable step-up in the pace of reform. This latest Shanghai-Hong Kong linkage is amongst a plethora of new measures rolled out by the Chinese government at a breathtaking pace.

In the past few months alone, we have seen a widening of the renminbi trading band, the end to the People’s Bank of China’s control on bank lending rates and the launch of Shanghai’s Pilot Free Trade Zone, which opens up two-way corporate payment flows.

Provides sought-after access to Chinese assets

The Through Train Programme is also a first step to quench the thirst of investors for Chinese assets, which have hitherto been inaccessible. Hong Kong, the leading renminbi offshore centre, will soon become the choice bridge between, on one side, global investors, who will gain direct access to China’s stock market and, on the other, tens of millions of mainland savers keen to diversify their assets.

The Through Train Programme allows mainland Chinese investors to trade Hong Kong shares up to a quota of CNY250 billion, and Hong Kong investors to trade in Shanghai-listed shares up to CNY300 billion.

Up to now, access to China’s A-share market has been limited to licensed institutional investors going through the QFII/RQFII quota schemes. The new programme provides a more direct and flexible means for investors, including retail investors, to trade Shanghai-listed shares without the need for going through fund managers.

Like most reforms, every change will bring about knock-on effects. As a start, the programme may narrow valuation gaps between the Shanghai and Hong Kong equity markets. The CNY20,000 conversion cap may become the next regulatory consideration in China’s pipeline. Listing in Hong Kong may present a fresh appeal to foreign issuers. And given the scheme is denominated in renminbi, the implicit convertibility of the yuan has never been clearer. These are all plausible suppositions to bear in mind.

Skeptics may argue that the quotas set by China limit the scale and relevance of the Through Train Programme. But it is important to note that the quotas are net amounts, not gross, and that underlying trading value can be many times greater.

For policy makers, it is more straightforward to bring about changes when a market is either all open or closed. It is a different matter when a market is trying to move from one to the other, where far more considerations need to be taken.

Chinese policy changes can have major implications

It is true that by imposing quotas, China has stopped short of a complete opening of its capital account. Yet, quotas are absolutely necessary to manage the transition from a closed economy to an open one – not to mention this is an economy worth CNY57 trillion and second in size only to the US. Even the smallest degree of change in China’s policy could have tectonic-shift implications for the mainland, and send ripple effects across global markets.

China always moves one step at a time, starting new programmes small and expanding them in an orderly manner only when the time is right. To be successful, the Through Train Programme will need expanding and it may prove difficult to achieve the desired results without going all the way.

"Investors should not be put off participating in this significant step in China’s market liberalisation"

The opening of stock trading will bring about a different approach to qualified foreign and domestic institutional investor schemes. The former offers a new avenue to directly invest in China and Hong Kong stocks, whilst the latter still has its intrinsic portfolio value as it spans across a wider spectrum of investment alternatives including bonds and futures.

Also on the horizon is the introduction of a ‘mutual recognition’ programme which allows Hong Kong-based mutual funds to raise money from mainland investors and vice versa. All these are progressive examples of China’s willingness to experiment with different policy variations in the journey to open up its economy.

There will be bumps along the way

The Through Train Programme is not perfect. There will be questions and concerns over the quota application and what happens when quotas are reached. Inevitably, any quota system will create distortions and may induce unnecessary problems.

Investors should brace themselves for bumps along the way, but they should not be put off participating in this significant step in China’s market liberalisation. What lies ahead will be well worth the ride.

A version of this article appeared in the South China Morning Post on 15 April 2014