Asian wealth managers are looking at 2012 with renewed optimism -- a view largely shared among their clients, with growth overtaking liquidity from last year as the most important product feature.

That’s according to the annual Asia Wealth Management Survey conducted by Barclays, set to be published today. It features 109 respondents from 65 firms across eight Asian nations, with participants including banks, private banks, broker dealers, fund managers and insurance firms. Overall they have more than $3 trillion in total wealth managed.

Asked their view on the outlook for China’s economy, 96% said they expected the country to avoid a hard landing, with 68% forecasting the nation’s GDP will grow 6-8% this year. China-based wealth managers were yet more bullish, with most expecting the economy to grow 8-9% this year.

Consistent with the previous year’s survey results, 54% of wealth managers expect China’s AUM growth rate to remain above 15%.

However, this year Indonesia has overtaken India as the country with the second highest growth expectations, with 36% of wealth managers forecasting growth of 15% or higher.

“We are seeing growing optimism for the recovery of the global economy, which is reflected in Asian wealth managers’ 2012 outlook," says Philippe El-Asmar, Barclays' head of distribution for Asia-Pacific. 

“It is encouraging to see high hopes from AUM growth rates and confidence in the China, Indonesia and India stories.”

There are also signs that wealth managers are optimistic when looking outside Asia. Asked about the probability of the EU breaking up in the next two years, 70% put it at a 0-25%, with just 10% indicating a probability of over 50%.

Asked their recommendations for a global balanced risk portfolio, most managers said the weighting towards US equities should increase over the next six months, signalling a more positive outlook on the US economy.

Meanwhile, the survey showed that the long-term trend of wealth accumulation in the region is expected to continue. A majority of respondents expect the number of millionaires in Asia to grow this year, with 64% indicating a growth rate of between 6-15%. A further 23% of respondents think that the growth rate will top 15%.

Asia ex-Japan equity continues to have the largest balanced portfolio weighting (13%), although this dropped three percentage points from 2011. Developed market bonds also stood at 13%, from 10% in 2011, while emerging market bonds rose by two percentage points, to 12%.

In fact, emerging markets has become the second most actively used asset class by clients of wealth managers (after equities), compared with fifth last year. That’s followed by FX, credit, rates and, lastly, commodities.

Some 62% of respondents expect to increase their allocation to EM bonds over the next six months, while 32% expect to decrease cash and 30% to decrease their exposure to developed market bonds.

Asked how their clients were hedging against inflation, gold is now the most favoured hedging instrument, overtaking equities from 2011.

Further, growth has emerged as the most important feature this year, taking over from liquidity which was most important in 2011.

Meanwhile, even as the search for simple, transparent access products (Delta-1 strategies) remains the most important trend for clients of Asia’s wealth managers, it has become less dominant in 2012, with 38% seeing this as a key or very important trend, compared with 55% in 2011.

Exchange-traded products and fund-linked products were the most commonly sourced externally, with 35% of respondents indicating they use third-party sources. Commodity products have now dropped to third, compared with fifth in 2011.

Research continues to be the most commonly used activity on electronic platforms, with 79% of respondents indicating they have full or substantial use. This is followed by analytics at 66% (compared with 50% in 2011), price discovery at 65% and trade execution at 61%. Product ideas (45%) and book building (37%) brought up the rear.

Bonds are now the most commonly traded asset class on electronic platforms, with 62% of respondents declaring full or substantial use. This is followed by FX derivatives at 51%, equity derivatives at 46%, rates at 39% and commodities at 38%.

In terms of product strategies, capital protection has now overtaken the use of simple transparent access products as the most commonly used product strategy, with 59% indicating full or substantial use.

After Delta 1 strategies (54% with full or substantial use) came market return/beta strategies (48%), leveraged products (44%) and alpha strategies (37%). At the bottom of the pile was thematic investments (16%), such as socially responsible strategies.

“Evidently risk aversion is still top of their minds for investors, as demonstrated by the great importance they place on protecting their underlying capital,” said Peter Hu, head of investor solutions with retail at Barclays. “While optimism is budding in the market, a certain measure of risk aversion continues to be reinforced by demand for simple, transparent products.”

Meanwhile funds, structured deposits and private placement notes are the most commonly used delivery vehicles and the use of all three types are expected to stay the same or increase over the next year.

Some 51% of respondents expect exchange-traded products to increase in terms of the delivery mix over the next year, followed by structured deposits (41% expect it to increase) and unfunded derivatives (36%)

But for funds (mutual funds, structured funds, hedge funds), just 34% are expecting an increase, with 30% for insurance-linked securities.

Despite the optimism, the industry still faces challenges. Adapting to a changing regulatory environment was again cited as the biggest challenge this year, with 36% rating this very or extremely difficult. Differentiating from competitors was ranked second compared with fourth in 2011.

However, hiring and retaining talent, last year’s biggest challenge, drops to third in this year’s poll, with 24% of respondents highlighting it compared with 40% in 2011.