(Xinhua/Cheong Kam Ka)

OPINION – Wealth Management Connect in the Greater Bay Area

At the end of April this year, the Chief Executive of Macau mentioned in his “Fiscal Year 2020 Policy Address” that finance is a main development direction for the SAR government to achieve diversified economic development.

Professor Jean Jinghan Chen | Dean of Faculty of Business Administration and Chair Professor in Accounting and Finance, University of Macau 

Dr Hung Wan Kot | Finance Programme Leader and Assistant Professor in Finance, Faculty of Business Administration, University of Macau 

Measures include speeding up the revision and deliberation of laws and regulations, following up the feasibility study on the establishment of an RMB denominated securities market in Macau, promoting mainland enterprises to issue bonds in Macau and expanding RMB financial services and products innovation, development of financial leasing, and the construction of Portuguese national RMB clearing center. At the end of June, the People’s Bank of China, the Macau Monetary Authority and the Hong Kong Monetary Authority jointly announced the “Wealth Management Connect” (理財通) pilot business, which allows individual investors from Guangdong, Hong Kong and Macau to invest in the financial products of banks in the region. Specifically, mainland residents are eligible to purchase qualified investment products sold by banks in Hong Kong and Macau by opening investment accounts in banks in Hong Kong and Macau. At the same time, residents in Hong Kong and Macau are also eligible to purchase qualified financial products sold by mainland banks through opening investment accounts in mainland banks in the Greater Bay Area. 

Wealth Management Connect is an extension of Shanghai-Hong Kong Stock Connect in 2014, Shenzhen-Hong Kong Stock Connect in 2016 and Bond Connect in 2017. It is the specific presentation of the policy of promoting individual cross-border investment facilitation of residents in the Greater Bay Area under “Outline Development Plan for the Guangdong-Hong Kong-Macau Greater Bay Area”. At present, the financial services announced use RMB for cross-border settlement of capital transactions, and the exchange of funds is completed in the offshore market. The cross-border capital flow is managed by the total amount and individual investor limit. The initial investment scope is limited to purchase qualified low-risk and simple investment products, such as interest-bearing products and foreign currency-related products. The official start-up time and implementation rules are expected to be announced later. 

Since its return to the motherland, Macau’s political and economic development has been stable. The accumulated wealth of Macau’s residents is considerable. According to the Statistics and Census Service (DSEC) of Macau, as of the end of 2019, the total deposits of Macau residents were 670 billion MOP, including fixed deposits of 406 billion MOP and non-resident deposits of 243.8 billion MOP. Moreover, the market value of Macau’s securities, including those held by the Macau government and individuals, exceeded 900 billion MOP. These data fully reflect that Macau has a relatively rich market foundation for the development of financial investment. On the one hand, most of the deposits of Macau residents are fixed deposits, which reflects the low-risk investment of Macau residents but the single variety of financial products. On the other hand, the rate of return of bank deposits is almost the lowest among all types of investment. If residents want to increase the value of accumulated wealth, they should consider other diversified investment products, including personal stocks, bonds, and bank financial products. However, at present, the private financial services business of banks has not yet been developed. In particular, local bank mainly provides mutual fund and insurance services to customers. However, investors need to purchase and manage stocks by themselves while banks can only provide some advice. It is worth mentioning that both Chinese and foreign banks have relatively weak bond products or even no bond products. 

At the same time, wealth management education for investors is equally important. In fact, there are risks everywhere in the investment market. If investors lack sufficient financial knowledge and risk awareness, they may lose significantly. News of the occurrence of financial product “explosion” is not uncommon. For example, on the 15th September 2008, the bankruptcy of Lehman Brothers caused the value of its credit-linked notes, known as mini bonds in Hong Kong, to plummet, causing dissatisfaction among investors. In fact, mini bonds are not bonds. They are financial derivatives with the investment target of credit default swaps (CDS). They are high-risk financial investment products. Investors, including many professional investors, don’t know exactly what a CDS means. Hong Kong is the region with the largest issuance and most extensive coverage of mini bonds. Most of the mini bond investors regard it as a deposit substitute with a higher yield, so they cannot accept the fact that their principal may not be recovered because they are conservative investors. As investors directly contact the retail banks, they do not even notice the relationship between them and Lehman Brothers in the purchase process, their dissatisfaction with the banks has increased sharply. The main complaint is the unreasonable sales methods of banks. 

There have also been recent incidents in the mainland, such as the “fake gold” incident of Jinhuang Jewelry. Listed on NASDAQ in the United States, Jinhuang Jewelry, one of the largest manufacturers of gold jewelry in the mainland, is suspected of pledging 80 tons of gold to a number of financial institutions in order to obtain loans of more than RMB16 billion. However, the inspection results show that the so-called gold is “fake gold” plated with copper. The financial institutions involved include a number of trusts, banks and microfinance companies. Behind these financial institutions, tens of thousands of investors are implicated, and their investment interests may be damaged. Another example is the “Crude Oil Treasure” (原油寶) incident in April this year, which caused heavy losses to investors and damaged the reputation of banks. 

In addition, investors need to pay attention to the principle of diversifying their investments and avoid putting most of their wealth on top of the superficial return of a particular financial product. High returns are accompanied by high risks. Furthermore, because Guangdong, Hong Kong and Macau have different financial systems. They also have different institutional framework in the protection of investors’ rights, interests and the settlement of disputes. These are all potential risks that investors need to pay attention too. 

From design, management to marketing, a financial product involves knowledge of wealth management, bank management, financial risk management, and business ethics. Recently, the Faculty of Business Administration at the University of Macau has re-designed its finance programmes at both undergraduate and postgraduate level. New courses such as Macau’s economy, wealth management, bank management, financial risk management, and modern financial technology are added. These newly designed finance programmes aim to make up for the demand of the Greater Bay Area in this respect, especially the demand of Macau market, so as to better contribute to the economic development of Macau.