Steve Brice is the Global Chief Investment Strategist, while Simpa Adaba is the head, Wealth Management Nigeria, Standard Chartered. In this interview with BusinessDay analyst, Micheal Ani, they give insight on how the global environment is shaping investment in the Wealth Management space. Excerpts:
What is the outlook for the bond market, from a global perspective?
From a trade tension perspective between the world’s two biggest nations (US and China), we are not too concerned in the short term as negotiations regarding the issue is going pretty well. From our perspective, we think a deal is going to be struck in April which will calm down tensions temporally between the two nations.
In terms of the bond market outlook generally, in 2018, we saw a pretty bit of a perfect storm in terms of liquidity, we saw tightening policy thickness in terms of a rate hike, credit space widening, treasury yields going up, dollar strengthening which was quite a bad environment for bond investors in emerging markets including the challenging environment in terms of returns perspective. They have reversed their record this year as we heard information that the Fed is taking down on their rate expectation – we were supposed to have two more rate hikes—so, that should be a positive environment for bond investors generally.
However, our preference is for emerging market bonds generally and the rationale for that is because generally, stocks are going to be cheaper, yields will be more attractive and the dollar–as we expected, may be slightly weaker on a global basis. That should be positive for those taking risks in emerging markets generally, particularly the bond market space. Even though our main focus is global, we still talk about the implication it can have for emerging markets. We were in Kenya a few weeks ago and now we are here in Nigeria, we expect people to be looking out for more yields and that will benefit both offshore and onshore debt markets around the frontier and emerging markets as well.
Since we would be having like one more hike to about 3 per cent this year, what hope lies for emerging and frontier markets. Should we expect to see more sell-offs, outflows or more inflows in the emerging market space?
We expect that the dollar does not strengthen which is our core view, then emerging market bonds should do well. We may see some volatilities which we can’t rule out that possibilities as there is a pretty big collaboration between short-term interest rate in the U.S and equity markets volatility which can be into the risky areas and in the bond market as well. But the big picture that I will say in emerging market bonds is, if you did see any risk opportunity rallying excessively, then you can be worried about.
Can you give an overview of the Standard Chartered Wealth Management operations in the emerging market?
From a bank perspective, we are Asia/ African Middle East with a vast operation of our markets in those two regions. Some of them are emerging markets. We have our big operations for instance in China, India. We also have in more frontier markets including in Africa, Nigeria. It’s our specialty and that’s what we do.
We have noticed a trend in the equity market that there has been a sell-off despite impressive earnings results from quoted firms. Investors are piling to the fixed-income market. What can you say is driving investors’ sentiments in this regards?
I think it is only a natural reaction. Talking about asset classes, in times of volatility and uncertainty, you would find people moving to where they see as safe to a great extent. While all asset classes have their proportions and it is essential that clients remain invested in all asset classes, in times where people are not sure, it is only natural for them to run to the fixed-income space where they have a sure bet on them. Also, looking at the Nigerian space, you will clearly understand that a lot of people have a history of equity in Nigeria so there is a flight to safety in times like this.
Do you see them turning back to the equity market?
Locally, even though we are not into equities, of course, there is a general understanding to how this is done. You would always see those flows. If something happens in the US while we understand the general, you will always find a scenario of people responding in the local market. But essentially, I think people are very clear on what fixed income is and I think in the last couple of months, talking about flows, we have had a lot of flows going into the fixed income space.
What does wealth management mean to Standard Chartered?
For us, it is a very simple term. It means, how do we help clients grow and protect their wealth? That headline essentially defines the kind of programmes that we have, it also defines our approach to investing. Furthermore, it dovetails into what it is that we do across all the products that we offer. So, it’s either we are putting something in front of you that helps you increase what you already have or we are trying to save some cost and that comes in how efficiently with price especially in the FX space.
It also speaks on how do we help clients in protecting what they have invested, which speaks more on the bank insurance business that we have? Beyond that, it is also providing convenience that comes through helping them to unlock stock that have already been invested through our lending proposition.
It is really creating that scenario where it gives the client options and the flexibility to do what they need to do at any point in time with minimal manageable risk rating. So one really key defining factor for us is that we put the client at the centre of what we do. Our approach to investing ensures that we risk-rate things that we do and make sure our clients invest in things we consider appropriate for the risk capital they have expressed to us. We also have a very strong team of investment advisers that do a brilliant job in terms of giving clients advises in the context around the decision they want to take. We are already clear around what wealth means to our clients and they are quite passionate that when they earn money, they are really clear about what that particular money means to them.
So, the scenario about someone saving up for one’s children’s wedding in the future or even saving up for school is solved already. The last thing they want to hear is that the money had gone in a certain way. So these things are created in such a way that they ensure that we create as much information to clients. Where ultimately, the clients take a decision for him or herself but we basically provide much support and I think our clients are much clearer about the things that they do which also speaks to us having won the wealth management banking awards in the last two years. It is only a market recognition of the fact that we have the options provided to our clients in terms of products, but we are also quit disciplined in our approach in allowing our clients go into investments and the sort of products to invest into
It’s always important that investors are diversified but it is even more important this year because the economic cycle in the US is over ten years which is invariably the second longest in history. This year if it continues as we expect, will be the longest in history. It will end at some point and we will have a recession when, who knows? It may be 2020, maybe 2021, but it will happen.
Hence it is important not to be excessively exposed to one single asset class but try to diversify not just domestically, but also internationally.
Can you give us a history of wealth management trend in Nigeria and how has Standard Chartered been able to navigate this trend over time?
The Nigerian franchise I will say is relatively young, 10 years at this point in terms of wealth management but became actively strong in the last 7-8 years. The simple thing is on how we help clients exhibit on their FX to invest in treasury bills, bonds. However, beyond that, I think our focus is not about the product but about the client. It involves a scenario where we are responding to what our client needs and at this point in time, our focus is on Nigeria and globally. That is access to the products that our clients have. For example, can our client get on the app and purchase our product? We have spent a lot of money as an institution trying to digitise and make sure that whatever product we have our client can access it. We are still doing that, but we are trying to revamp how our clients access it and how smooth the execution is for our clients. The products are largely still the same, but the ways it’s been approached are some of the things that have happened over the years.
This is the third time I’ve been here since I’ve been coming here every year now.
So, we are still trying to make sure that international perspectives that we bring as an organisation are delivered directly to clients. I’m still talking to the relationship managers and the investment advisers, giving them the opportunity to ask directly any thoughts, any concerns that they have about the environment about what we are doing. We’re just trying to maintain that touch point; we have a monthly conference call just to keep them informed and get feedbacks.
What are foreign investors’ perceptions of Nigeria?
I think it’s quite normal. People on the ground are generally being more pessimistic than standing offshore and looking in. A different perspective has different value and they are much focused on, unless something is really fantastic in a country or really bad in a country. I think the global environment is very important to drive to what is going to happen to local asset particularly currencies and bonds. The international community has said okay. Last year we were worried about what’s going to happen in the election circle. It went very smoothly, I think that gave people confidence and then you got the positive dollar liquidity environment and positive external environment. That way, we are going to be seeing more money coming into the country.
Tell us some of the products you offer in Standard Chartered Wealth Management offers.
We run what is called the open architecture, which means we basically don’t have to manufacture our products, but we focus basically on partnering or basically risk-rating by going through a process with fund houses to try and get best in class. So we go through that process and ensure that we are happy with what’s on the ground from those institutions or those issuing houses.
Then we check on what our clients have an appetite for and we match them. So essentially, there are some that are regular, from the federal government bonds in Nigeria which everybody in Nigeria knows about, to treasury bills, to mutual funds, foreign currencies with Eurobonds. We essentially ensure that we are positioned to redistribute just about what we consider are adequately well managed in terms of risk to our clients. So, it is pretty much quite broad, those are general headlines but it has a whole lot of other things but nothing super exotic because at this point in time in the Nigerian market we are extremely to a great extent playing at a safe end.
What are your clients most worried about in terms of maximising their wealth.
Volatility! If you are a customer and you invested in something and you see the price moving in a particular way, you are going to get worried. So people are concerned and that is where the investment advisory team and the engagement with people come in
The last you want is to throw your money somewhere and no one is attending to you. And I think we have help to demonstrate strength in that regard, whether in good times or not in good times, our investment advisors through our relationship managers as well, are able to speak to clients giving them necessary context. Because something is not going the way you want doesn’t mean you should jump out.
Like we said earlier, if you are fundamentally clear about why you invested in the first place, you might want to put more at that point.
If you invest in one single stock and it goes down 30 per cent, you might be confused to know what to do but if you diversify across various asset classes, you will manage your emotions quite significantly it might be down by only 5 per cent which would definitely turn out great overtime.
How does the issue of multiplicity of taxation affect investment in the wealth management space?
It is not something under our purview, but of course, in terms of what we do locally is about investing in government instruments and these instruments are tax-free. So to that extent, it is pretty very clear that we don’t see double taxation as an issue in that space because we are not getting our clients to ship money abroad. They are investing in instruments and it is basically coming back. Except you are moving to another country but what we are offering in Nigeria is not taking you out it is all within Nigeria pretty much.
Can you give a percentage allocation of your investments across the various asset classes?
Wealth management structure in Nigeria is not an access management structure. Meaning that we basically allow the clients to decide where they want to put their money and their choice is within the asset classes that we offer. In that regard it is really not us creating a framework for them; it is really their decision. For instance, if they show up, and they are more comfortable with the fixed income we will still tell them to diversify because there are awesome benefits when they diversify. But the reality is, it is evenly spread and there is no huge concentration anywhere from what we see broadly which is speaking to clients behaviour and not what we are influencing.
What are you going to do to bring more of your presence into Nigeria?
Speaking from a wealth business perspective, we are investing in the wealth business and me coming here, is part of that investment. This is the third time I am coming to Nigeria as I have been coming every year within the past three years and I think what I’m very impressed with when I come in here is that the team is doing a very great job. So generally, we have so much confidence in the local team here and we expect that there is more to come. I think it is a good business for us and we want to continue investing in it.
How special is the year 2019 for Standard Chartered, seeing the firm tagged it a year to prepare and react
We do see volatility as being the new norms. In 2017, global equity market went straight as there was no volatility. So, given that short-term interest rate went up we expect a two-year cycle rate hike to feed into volatility. So that 2017 scenario is the least likely one for us but if we see it in equity market volatility global inferences we will say it is a viable opportunity.
Because we are concentrating more on global growth, we can see central bank policies are being supported and that is why we are saying we should prepare and react. At the beginning of December, we were a little bit worried about the short-term outlook for equities, so we were a little bit anchoring down and at the beginning of January we are going to move a bit higher and that was what we meant by reacting to opportunities when they arise. So we will be monitoring the fundamentals as well as the market performance, as we go forward to see when people should take risk off the table or when should they add risk.
Elections are over, uncertainties are coming down and so is the tension. What should we be expecting from Standard Chartered wealth management?
Two things: we will continue to give investment advisory in terms of allaying clients’ fears because there is always an event to turn you up. For example, you can say that you are invested on the naira but what happens on your naira investment can be impacted by what Trump does or what happens in the United States (US). So you essentially need to be in that place where you are mindful of those events and you are asking yourself, ‘how does this impact me?’ so that you will have a global view and you can realise that if people in other countries are behaving this way, then it can basically affect me.
And you see that as a Nigerian investor, all you are holding are the Nigerian treasury bills (T-bills) or government bonds and then there is a sudden demand for those bonds by the auctioneers who are seeking to get better price because something has happened somewhere.
It impacted people’s appetite for emerging markets and there no particular thing Nigeria did wrong; it was just that Nigeria was in the basket of the emerging markets and the international collector had taken a position on the emerging markets.
When they were selling off and running back to the US, they impacted Nigeria. From that perspective, what we found to be very critical for a client is really at every stage is someone talking to him? Is he getting up-to-date information from the point where he bought his products? Did he understand the features? Did he understand the upside and the downside and beyond that as things go up and down, is he able to review his portfolio and take a decision? Is his portfolio manager engaging him?
Secondly, we want to make access to our products easier, and so this year we plan to bring into the market something potentially different where people should from the comfort of their house be able to do simple things like buying T-bills, do a Federal Government bond, small-ticket sized mutual fund., etc. let the submission be able to happen on the platform and then we would see how that takes us going further.
These are things we are thinking about, where we provide big things (i.e. advisory talk), and how are the products for people? We are thinking through that, especially the digital agenda. We fly in people to come and speak and provide support but beyond that are also spending a lot of money globally as a bank on digital. I am not sure everybody goes to the banking hall these days as often as we used to because we are able to do most of the things we need you to do on your phone. To that extent, we need to create platforms and support the platform we already have that will enhance how people do this. There is no doubt about it as we are committed to this market and the market is too big to ignore.
The derivative market in Nigeria is still picking up. How is the bank playing in the market given that the growth in the economy is a market that has already demonstrated a lot of potentials?
We do not do derivatives because the current structure of where we are in wealth management does not include derivatives, but the reality is that the derivatives market would only take a few from the level of development in that market. So it’s going to be punctual and I think to an extent, regulators are well aware of the understanding that they have. But the market itself must understand this product. We do not create products, we look at products that already exist with the Federal Government bond for example, and the issuer is the federal government.
So, we didn’t create that product, but we understand the products, the risk profile. The market is ready to do derivatives to the extent that the participants are ready for it. That will be my take about it.
The mutual fund markets, how are you playing there?
As I said, we don’t create these products to start with, but when clients express their interest, we can then advise. It is really what the client thinks and how they perceive things. The truth of the matter is that it is just one of the so many things that are available on the table.
What is the biggest thing you are doing at Standard Chartered, broadly and in wealth?
Digital is a big agenda for us, that is how to make the client experience a lot better. That has been a focus area. We have been working on it but we are not there yet. There is a lot of money that the bank is committing to make that experience a whole lot better for clients, which is the most important thing. You realise that banking is becoming more convenient and so it is not the products they are selling, but what convenience you are offering? People are not finding it interesting to come into a banking hall which is how bank started and so we are moving from that and thinking through all of the processes. So it’s really doing exactly the same thing but making it easier for the client and working through, ‘what is the client thinking right now?’ If the client can do stuff on his own, and banking is not on his own, then there is a problem.