Following is the transcript of a CNBC interview with Su Shan Tan, Group Head of Consumer Banking & Wealth Management of DBS. The interview was broadcast on CNBC on 24 April 2017 at 09:30AM SG/HK Time, during CNBC's "Hong Kong versus Singapore" theme week.
All references must be sourced to a "CNBC Interview".
Interviewed by Dan Murphy, Correspondent, CNBC, Oriel Morrison, Anchor, CNBC and Bernie Lo, Anchor, CNBC.
Dan Murphy: Now first of all let us go to the money question, how's business at the start of the year and what are your top clients asking about in 2017?
Su Shan Tan: So as Oriel said we're in the money, you know, Asia's been surprisingly resilient. Customers have made money in Q1, I think they're looking to see how they can protect the profits, diversify their risk, control their downside, and also pay particular attentions to rates and FX, you know, getting the foreign exchange right, getting your currency allocation right, getting your interest rate risk right is pretty key going forward. You know, I think customers do feel that some markets are overvalued but perhaps there's still very good value in Asia and Asia has been surprisingly resilient. If you now look at the China numbers, look at the Singapore numbers, they've all been pretty good.
Dan: What are you getting asked about the most? Is it equities, is it bonds, is it cash, tell me.
Tan: Honestly it is really a spread across different asset classes, I think for fixed income the sense was "are rates really going to go up by two or three times, or four times?" I think that the market's very split right now you know there's the war premium should we be taking on some downside protection here with what's going on in North Korea, with all the elections in the European markets. And the fixed income market in the face of all this has been surprisingly resilient. I guess that's because inflation numbers have not been too bad. And the GDP numbers have spurred confidence in equities. So you know I think the pipeline for ECM is coming back. The REIT market is still pretty strong, and I do think there will be further allocation back into equities.
Oriel Morrison: I'm interested from your perspective, wealth management in particular, we know that Singapore is a wealth management hub, but if I had to say to you. You know, I got a hundred bucks, should I put it in Singapore or should I put it in Hong Kong, what would you say to me?
Tan: Oh okay. If you're talking about the equity markets, Hong Kong, you know, is part of greater China and the Chinese story is alive and well and kicking. From an equity markets perspective, I think the Hong Kong capital markets is still extremely strong, valuations are not that stretched so that's where I would be. Obviously in the FICC markets, fixed incomes, rates, commodities etc., Singapore has tried to build itself as a FICC hub and in the equity capital market it's a specialized hub and REITs for example in the REIT business, where there seems to be some very decent flow and the reason for the flow into REITs is stability of income, transparency of income and diversification of asset back risk.
Bernie Lo: One of the problems I'm having here in Hong Kong is the fund management industry, it has been widely accused of bilking the consumer for a long, long time. Only now, the here and now, that the provident fund industry, for example, is managing to get some of their core products to the people at under 100 basis points a year of net asset value. That's a default investment scheme which is only coming in the industry has come under a lot of pressure for charging on average, for somewhere near a hundred and sixty five basis points which you know very well is a lot of money in an underperforming market. Or when you're actually involved in an index tracking or even a smart beta type vehicle. Does Singapore win in the cost containment battle against Hong Kong?
Tan: You know I guess all financial hubs are disrupted by the robo advisors, fintech, bringing fees down for any distribution of financial assets, even for loans, wealth management products, unit trusts etc. So you know, one thing's for certain, fees are going down.
It's really what value you bring. And I think the fintechs and banks are using fintech to help them. Where fintechs are better, are better at data analytics, better at bringing the right product, the right recommendation engines and the contextual marketing at the right time and the right bite size to the right price to the right customers. So that sizing has been very helpful and frankly very constructive for consumers. Consumers win in this game, you know, and I think both Singapore and Hong Kong are going to have to react to this price compression on fund distribution as well as the industry on the whole.
But that said, I think at the higher end of the wealth management curve, there's still is a need for wealth structuring. There still is a need for real structuring of a business, of creation assets and wealth management assets. So I think that still, thank God, requires a fair amount of human leadership and human advice. But that said, I think, at the mass retail, where you're talking about mass distribution of unit trust, yes definitely. ETFs are cheap, ETFs have done very well and they've been a great diversifier for the retail wealth industry. And I think it's great to have this democratization of wealth management for the masses frankly.
Dan: Su Shan, let's talk about the new opportunities coming up on the horizon for you in the market. I thought that it was fascinating to see DBS making a pretty big push into Indonesia, of course, acquiring some ANZ assets recently, and release of the tax amnesty has also been quite beneficial. Tell me what the opportunity is for DBS and Indonesia.
Tan: Sure. I think for Indonesia and India and China, these are the big growth markets, you can't beat two billion population obviously and the growth of the middle class. But more importantly, I think it's the emergence of disruption and be welcoming of the financial leap frogging that this disruption brings. And it's less fintech but technology companies providing financial, digital financial services to the masses, you know, to the mass populations banks for example. Bringing them access to liquidity, access to deposits, access to loans. And I think that will be a game changer.
And how DBS wants to play in this field is to be able to harness this fabulous technology, to be able to give us that reach and that ability to reach out to bigger market, a wider market without the cost that comes with an incumbent, you know, branch-based banking.
In terms of wealth management, I am bullish on Indonesia. I think that, you know, the middle class population is growing nicely, the market's stable, the currency's stable, politics has been relatively stable and the move to send money back is a signal that you know there will be more to come, in terms of product innovation, in terms of enabling a wealth management industry to grow further. So I remain very constructive about the Indonesian domestic wealth management industry.
Dan: And Su Shan very quickly, bullish on Singapore as well?
Tan: Yes, I think so. I mean I would look for some upside in Singapore. Definitely.