Emerging Markets Offer Unique Opportunities
Despite slower growth: Emerging markets remain of key importance for the Swiss financial center.
Only a few years ago, emerging markets were considered a prime example of economies with almost unlimited growth potential. Thanks to annual double-digit growth rates in the wake of the financial crisis, the 'BRIC' countries (Brazil, Russia, India and China) became increasingly important drivers of the world economy and developed into promising markets for the global finance industry. However, emerging markets now appear to be at a crossroads: Much has been written of late about the risks of limited growth, the devaluation of local currencies, capital outflows and rising debt levels.
Despite the recent slowdown, these countries continue to rank among the most important economies globally and, in absolute terms, many are still growing faster than most industrialized nations. In terms of size, the emerging markets already account for up to 60 percent of global value creation, depending on the criteria applied. The demographic factors, in particular, speak for themselves: Emerging markets are now home to over 80 percent of the global population and, according to Credit Suisse forecasts, their share of the world's population will grow about twice as quickly as that of industrialized nations by 2020. This means that in the space of just four years, the populations of emerging markets will increase by around 250 million – a number equivalent to the current population of Brazil. The purchasing power of the upper and middle classes in these countries is becoming an increasingly important factor in global consumption. In the future, a rise in value creation is expected to lead to a continued increase in demand for investments and financing. Credit Suisse analysts expect that by 2020, the trading volume for listed securities in the emerging markets will grow at a rate of 12 percent annually – compared to 6 percent in industrialized nations. By 2030, emerging markets are expected to have over USD 160 trillion in additional capital – representing a unique opportunity for financial services providers.
Unique Opportunity for the Swiss Financial Center
A closer look at private clients with assets over USD 1 million confirms this outlook. In industrialized nations, the current global addressable assets for the private banking industry amount to around CHF 20 trillion. High-net-worth (HNW) clients account for around 75 percent of this sum, while the share held by ultra-high-net-worth (UHNW) clients is around 25 percent. In emerging markets, there is currently around CHF 13 trillion of total addressable assets – significantly less than in industrialized nations. However, in these countries, up to 40 percent of these assets originate from the top client segment. Seen in absolute terms, at around CHF 5 trillion, the assets of UHNW clients in emerging markets are greater than in industrialized nations, where the figure is around CHF 4 trillion. The long-term growth forecasts that have been outlined are expected to reinforce this scenario in the future. The anticipated annual growth rate of around 11 percent for assets from emerging markets is significantly higher than the annual growth forecast of approximately 4 percent for industrialized nations. According to analysts, the reason for these differences is that in established markets, asset growth is much more dependent on returns on existing assets and financial investments, while in the emerging markets, growth is driven more by new money generated by entrepreneurs.
How can the Swiss financial center take advantage of this situation? Swiss banking has a strong international heritage and track record based on values such as stability – whether political, legal, regulatory or monetary – accountability, universality of the range of products and services, as well as excellence in terms of quality, expertise and innovation. In addition, Swiss banking benefits from the exceptionally strong Swiss brand. "The attractiveness of Swiss banking is often a decisive factor when it comes to establishing and developing a client relationship", said Iqbal Khan, CEO International Wealth Management at Credit Suisse, in a speech at the "Finanz und Wirtschaft Forum" in Zurich at the end of January 2017. In emerging markets, HNW and UHWN clients are typically entrepreneurs, who often share common characteristics such as being decision-oriented, interested in innovative ideas, and willing to take risks. "The strength of traditional Swiss financial services providers is not only that they understand the concerns and needs of these entrepreneurs," says Khan, "but that they usually also have a strong local presence, relevant experience and the right specialists to cover both assets and liabilities requirements." At Credit Suisse, relationships with first-generation entrepreneurs in emerging markets tend to encompass the management of private wealth and the provision of services on the corporate side, as the two are closely linked.
Satisfying Clients and their Expectations
According to Khan, the fact that the needs of entrepreneurs incorporate both a private and business perspective means that these clients hold enormous potential for a bank with the right expertise: "The requirements and expectations of the majority of entrepreneurs in emerging markets are similar to those of institutional clients", he explained. "Financial services providers with direct access to capital markets and a track record in financing, product development and asset management, and who combine a local and global presence have a competitive advantage." Credit Suisse is one of the few banks with a clear value proposition in these regions.
The key question that must be addressed in order to succeed in emerging markets is not: Which region or which country? It is much more about financial services providers satisfying expectations and meeting complex and increasingly sophisticated needs, such as the greater demand for investment products. For example, in 2016, Credit Suisse launched a fixed maturity investment fund with a volume of approximately USD 4 billion to which over 2,000 clients subscribed. 85 percent of the volume was placed with emerging markets clients. Iqbal Khan is convinced that Swiss financial services providers who clearly focus their strategy on emerging markets and on understanding and meeting entrepreneurs' needs holistically will be able to continue to successfully participate in the dynamic growth in these regions.