One reason why the term “Asian century” has become so prominent is that since the turn of the millennium a vast amount of wealth has moved east. According to consultancy McKinsey, wealth in Asia Pacific (APAC) grew fourfold between 2000 and 2020 and now stands at 42% or US$218 trillion.
As wealth continues to rise to the east, the affluent are looking to protect and grow their wealth, while the aspirational masses, mainly the younger generation, are looking to achieve their wealth goals quickly. In recent years, digital transformation and innovative new business models have removed many of the barriers preventing retail investors from accessing the financial markets.
The number of retail investors, especially the younger demographic, is on the rise. As this market expands, regional brokerages will increasingly dive into specific target sectors.
At the same time, new digital-first entrants are putting tremendous pressure on traditional brokerages across the sector. Asia Pacific is also highly fragmented, with each market having its own regulatory framework, maturity level and language, making it challenging for brokerages to scale their products and services.
Types of Asian Retail Investors
Asian retail investors can be classified along three dimensions:
- Traders Vs Asset Allocator
- Millennials/Gen Z vs. Gen X/Baby Boomers
- Mass Retail vs. High-Net-Worth Individuals (HNWIs)
On each dimension, there is a spectrum where a person can fall.
While these three dimensions are universal, where an “investor” will fall on each one varies across markets. The aging, developed economies of Asia Pacific are likely to be largely affluent, passive, older investors with low risk profiles. In the region’s youth, emerging markets such as Indonesia, there are likely to be more Millennial/Generation Z active traders who are tech-savvy and have a higher risk profile.
The time dimension is another essential factor when looking at the Asian retail investor archetype and their evolution. The overwhelming consensus from Kapronasia’s research is that an increasing number of young investors have entered the market over the past two years.
The pandemic has accelerated both these trends – growth of the retail investor segment and young investors entering the market. Indeed, the most severe public health crisis in a century has fundamentally changed the way people invest, with digital modes becoming the mainstream way people want to manage and manage their money.
While young investors may not contribute the majority of a brokerage’s revenue today, these individuals will be the cash cows of tomorrow. Hence, brokerages must pay special attention to this segment and prepare to serve them in a manner that matches their needs and requirements.
Crypto, being highly speculative in nature, appeals to young Asian retail investors who feel certain avenues of wealth creation are closed to them. This is true in many Asian markets, from developing countries like Indonesia, where more crypto assets are traded by volume every day than traditional assets on the country’s stock market, to developed countries like South Korea, where an estimated In 2021, one in three of the country’s citizens either invested in crypto or got paid in digital assets.
To be sure, the two biggest countries in the region are not exactly keen on crypto: China and India. This is likely to happen for some time.
Nonetheless, many other Asian countries are more open to digital assets. But there is still one big problem for the brokerage to solve: The rules need to be revised. This may change somewhat after the explosion of crypto exchange FTX. However, brokerages still need specific regulations to allow fund managers to offer crypto asset services to retail clients. Given the strong demand from young investors for crypto assets and their propensity to trade on foreign exchanges, brokerages in Asia could lose out without swift regulatory action.
demand for wider reach
Another important regional trend, especially in developed APAC, has been the introduction of wider access to asset classes and markets. In the past, developed markets in the region had limited options available to their customers. As the retail segment grew and became more important and competition increased, these 14 brokerages had to begin offering a much wider range of products and markets to their retail clients.
The most common product Asian retail investors seek in developed markets is stocks, yet demand for funds is growing rapidly. Keeping this in mind, brokers have stepped up their promotion of the benefits of investing in funds, and now people are taking interest in them, especially virtual asset ETFs. Some investors are moving to mutual funds, encouraged by regulatory changes that allow banks, post offices and security brokers to sell them.
Julien Le Noble, chief executive officer of Singapore-based GTN Asia Financial, a trading and investment solutions fintech, makes a case for a broader offering. “Since young people are now much more literate in financial services products, able to watch everything and anything online and on the go, and hence they want more from their trading or investment app. They see Tesla and Google GOOG Prepare for more than choose,” he says.
Turbulent economic conditions have slowed retail trading volumes on global exchanges in 2022, which may indicate that retail investors are taking a wait-and-see approach to trading. Yet retail trading volume will inevitably rise again, and an increasing number of retail investors will enter the market over the next five to ten years, driven by the steady economic expansion and growth of the middle class.
The growth of the retail segment has also led to an increase in competition as new entrants enter the market to serve this growing customer segment. This has led to reduction in commission rates, thereby reducing transaction costs for retail investors, further facilitating their participation in the market.
Competition is set to intensify in the months and years ahead, including from upstart tech companies. Many digital wallets now store their customers’ credit in money market funds, allowing a higher rate of return than a bank account, while enabling their customers to use it to receive and make payments. Both platform companies’ super apps and standalone investment apps in Southeast Asia are now moving into wealth management as well, given that banks in the region haven’t effectively stepped up to meet the growing financial needs of Asia’s emerging middle class. Is raised.
Ultimately, the brokerage wants to continue providing value to Asian retail investors. To do so, they must have the agility to adapt and respond quickly to a rapidly evolving landscape of changing customer expectations, increased competition from new players, and new technology. While Gen X and Baby Boomers are cash cows for most regional brokerages today, brokerages need to keep an eye on the strategically important Gen Z and Millennials.
With this in mind, brokerages should consider belonging to a larger ecosystem that enables them to ‘plug-and-play’ as providers or consumers of ‘as-a-service’. This will allow brokerages to provide these services to their end clients or embed them in other value chains in third-party ecosystems.
While platform companies and other digital-first players have advantages in digitization, they lack the deep financial services experience that brokerages have developed over decades of service. Ping May Saw, Group Head, Strategy & Analytics at CGS-CIMB, notes, “These new entrants are coming up with easy-to-use platforms, they are strong in marketing, they have low pricing, but they absolutely do not offer We don’t. The best products or services out there.”
Traditional brokerages in the space have a chance to fight back. The question remains, will they do so effectively?
Credit: www.forbes.com /