Morgan Stanley selling its Indian wealth management business to UK bank Standard Chartered in May could be a sign of things to come.

Lacklustre growth in developed markets over the past few years has led private banks to look to developing economies, with many international players setting up operations in India, China, Singapore and other Asian countries.

Many of these countries were experiencing double-digit growth or close to it for years – Morgan Stanley set up its wealth management business in India in 2008, when the economy was growing at 9.3%. Since then, however, growth has slowed, with the economy growing by 6.3% in 2012 and 5% in 2011. On top of slowing growth has come an 18% decline in the number of Indian millionaires in 2011, according to CapGemini and RBC Wealth Management.

A combination of higher competition as employee and office costs rise faster than revenues led Morgan Stanley to exit India. (The deal with Standard Chartered is thought to be around $8 million, with Morgan Stanley’s unit running AUM of $800 million.)

The move follows the bank’s sale of its European wealth management unit (excluding Switzerland) to Credit Suisse last March.

Still considered a global player, Morgan Stanley has wealth management operations in Singapore, China, Hong Kong, Japan, Australia, Switzerland and Latin America. However, its exits from Europe, the Middle East and Africa (Emea) and India suggest the bank is seeking to limit its exposure to regions and countries that are not delivering expected returns.

Since the financial crisis, Morgan Stanley has sought to improve the fundamentals of its wealth business and focus on markets where it has scale and is profitable. Early reports had indicated that chief executive James Gorman was keen to focus the firm’s efforts on the US wealth business in the hope of more stable returns to offset volatility from its investment banking and trading activities. And after the US wealth division reported a pre-tax 17% profit margin last year, the strategy may be working.

However, while moving away from emerging markets may make sense short term, in the long term it could create larger exposure to domestic and Pacific Rim shocks.

This is a contributed article and the views expressed are independent and not necessarily those of Haymarket Media, AsianInvestor's parent publishing company.