[SINGAPORE] With other investment products on shaky ground, the seriously rich have been increasing their bets in the foreign exchange (forex or FX) market.
So far this year, equity markets have been highly volatile, commodities have turned negative, and even fixed income has been losing its allure. Still, private banks have managed to keep their revenues humming along, thanks to customers who have stepped up their FX trades.
"We see FX as continuing to be a big growth area in the private client space for the foreseeable future," said Bryan Henning, Barclays head of global research and investments, Asia.
At Bank of Singapore, FX investment products such as dual-currency products have more than doubled in the last two years, said chief executive Renato de Guzman.
From end-June 2011 to end-June 2012, client forex volumes increased 12 per cent, said Serge Forti, chief executive, BNP Paribas Wealth Management, Singapore branch.
BNP Paribas's most sophisticated and active clients have direct access to a 15-strong team of specialists with an average of 10 years' FX experience, Mr Forti said.
"We have also seen strong momentum in our FX business this year as client interest in FX has continued to grow and deepen," said Edmund Koh, Singapore country head and chief executive, UBS Wealth Management, Singapore & Asia Pacific.
Several factors have driven this momentum. Familiarity with FX has increased, interest rates have stayed low and some clients have been keen to put their cash to work, given the uncertain equity markets.
Unlike the "old rich" in the West who inherited their money, many wealthy Asians are first-generation entrepreneurs.
Some have learnt to deal across multiple currencies from years of doing business either as manufacturers/exporters or traders.
"Asian clients have been traditionally active in forex - an asset class which they regularly follow," said Olivier Gougeon, regional CEO, Asia Pacific, Societe Generale Private Banking.
Also, as clients are keeping big cash positions, they are more willing to manage this cash in several currencies to get better yields, he said.
"This is in part due to it being a relative play and there is always something to do whether one is bullish or bearish on macroeconomic developments and risk sentiment," said UBS's Mr Koh.
"Forex business is resilient - while bearish and uncertain equity markets may deter clients from investing, forex markets always offer opportunities," said Mr Gougeon.
Returns can vary, from close to zero (for currency placement in certain government bonds as a safe haven), to double-digit returns for riskier derivatives or structured products.
"Investors are more aware of the impact of forex on their investment returns and in the current uncertain times, forex still offers some alpha (which is return in excess of the risk)," said BNP Paribas's Mr Forti.
Clients have also turned to FX markets for monetising their views on markets, said Edward Lam, head, FX advisory, North Asia, Deutsche Bank Private Wealth Management.
"Recently, clients have also been looking to the FX market to hedge their positions in other risk markets like equities and credit as the correlations between global financial markets and across asset classes increase," said Mr Lam.
It helps that the FX market is the most liquid of assets.
"FX remains the most liquid and biggest market in the world given that it trades around the clock from Monday mornings till Friday evenings," said Mr Lam.
"Forex has been the most liquid market for a long time," said Wilson Aw, head of private banking, United Overseas Bank. According to the Bank for International Settlements (BIS), the daily global FX volume has grown more than 20 per cent from US$3.21 trillion in 2007 to US$3.98 trillion today.
"While the bulk of the volume is for trade, finance and hedging, FX is becoming increasingly popular with investors because of its easier accessibility and higher liquidity compared to other traditional investments like equities or bonds," said Mr Aw.
UBS said popular FX trades involve the Aussie dollar, Sing dollar, yuan, Canadian dollar and gold.
Many investors also have a natural use for foreign currencies, such as funding their children's overseas education, making investments in foreign properties and travel, he noted.