[SINGAPORE] Some wealthy clients at Asia’s top private banks are opting to unwind part of their equity investments instead of topping up collateral after the tumult in global markets triggered a slew of margin calls, according to people familiar with the matter.
Multi-millionaire investors from Hong Kong to Singapore at several large European and US lenders are taking a dim view of the outlook for global stocks as uncertainty over President Donald Trump’s tariff programme keeps them on edge, said their bankers, declining to be identified as the details are private.
A Hong Kong-based relationship manager said that as most asset classes suffered – from gold to stocks – some clients were not willing to take on more risk. Meanwhile, a Singapore-based wealth executive said some of them cut trading positions as they did not expect a rebound to previous levels.
Bankers spent the last few days juggling non-stop calls with nervous clients, who are typically notified if they breach loan-to-value limits and then given a few days to either top up or liquidate. Hong Kong’s Hang Seng Index plunged 13 per cent on Monday (Apr 7), the most since 1997, triggering forced selling.
In margin calls, banks often ask investors to add cash or securities to a portfolio that usually includes some borrowed funds or other securities when the market value falls below a predetermined limit, during a market meltdown or other event. Lenders can forcibly liquidate clients’ holdings if they are unable or unwilling to deposit funds.
Stocks, bonds and commodities all swung wildly on Monday, as waves of volatility shook markets that battled to understand the next phase after the US unveiled sweeping tariffs last week. Volatility has surged with nearly US$10 trillion wiped off global equities as signs of strain like frozen corporate debt markets and a jump in gauges of default risk emerged.
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Still, affluent private banking customers in Asia are not as heavily leveraged, which helped limit their losses over the past few days, some of the people said. Lenders tightened leverage rules for high risk trades since the 2008 financial crisis and the collapse of hedge fund Archegos Capital Management in 2021, while higher borrowing costs has also dampened demand, they added.
One of the financiers said leverage limits for lower-risk trading was capped at up to three times, below levels seen during previous market declines.
Asia, which has the fastest growing number of wealthy, is a key battleground for banks such as UBS Group and Citigroup and regional players including DBS Group Holdings.
However, doing business with rich individuals across different divisions of a bank can pose risks if clients are not properly vetted. Credit Suisse, now a part of UBS, saw many client relationships blow up in recent years, from bill Hwang at Archegos to Lex Greensill at his eponymous finance company and Luckin Coffee founder Lu Zhengyao.
In addition to the uncertainty over the outlook for equities, some investors, especially entrepreneurs, are more worried about the impact that the tariffs may have on their businesses, one banker said. BLOOMBERG
