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Wealth Connect might be building unrealistic expectations

Hong Kong’s financial institutions are eyeing new revenue opportunities worth as much as HK$3 billion a year from the Greater Bay Area’s Wealth Connect Scheme, according to Bloomberg. However, a survey shows that mainland investors might have unrealistic expectations for the returns they can get from the cross-border investing scheme.

“This is a breakthrough for the retail investor to open up new ways of investing on the other side, across the boundary,” Bloomberg quoted Daniel Chan, head of the Greater Bay Area at HSBC, which is hiring 300 to 400 people in Hong Kong for its regional expansion, as saying. “We are in full swing preparation.”

“It’s a game of numbers in some ways,” said Hong Kong-based Samir Subberwal, head of consumer, private and business banking for Asia at Standard Chartered, which is hiring or promoting 3,000 managers for its Asia wealth business over five years. “The total revenue pool on account of this could be quite large.”

Their potential new customers might not be that easy to please, however. Mainland Chinese investors on average are looking at 13 per cent annual returns from their investments under the scheme, a level deemed as too high given the restrictions, according to a survey by the Hong Kong Investment Funds Association.

To achieve such high returns, mainland investors will have to invest in products with medium-to-high risk levels that have a higher exposure to equities, HKIFA chairman Nelson Chow was quoted as saying by SCMP. However, the scheme allows mainland investors to only invest in about 300 Hong Kong-domiciled funds with low to medium risks with exposure to bonds and large cap stocks.

“We hope the authorities will relax the Wealth Management Connect scheme in the future to allow investors to invest in products with different risks levels to fit their risk appetite,” Chow said. It’s “very difficult” to achieve 13 per cent without assuming more risks, he added.

More on Bloomberg and SCMP

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