Manulife Asset Management's latest research highlights negative real returns on bank deposits in most Asian markets

Inflation, taxes and credit risk are undermining returns on bank deposits, heightening the need for investment alternatives.

Sep 10, 2013, 13:00 ET from Manulife Asset Management

HONG KONG, Sept. 10, 2013 /PRNewswire/ -- The latest report in Manulife Asset Management's Aging Asia research series introduces the company's proprietary 'Bona Fide Real Return' measure. The metric reveals that the effects of inflation, income taxes and credit risk are undermining returns on bank deposits, with savers in eight of the 10 Asian markets the company has a presence in suffering negative real returns. Over the past 10 years, Bona Fide Real Returns have ranged from marginally positive at 0.6% in Malaysia and 0.4% in Japan to startlingly low at ‑2.2% to -2.3% in Vietnam, the Philippines and Indonesia.

The Asian cash drag: Alternatives for a more diversified portfolio is the fourth report in Manulife Asset Management's Aging Asia series and builds on the findings of the third publication in the series, Asset rich, income poor: Key components of retirement income security for aging Asia.

The previous publication revealed that even households in Asia's five richest economies are at risk of retiring asset rich but income poor as many of their income resources are not mobilised efficiently. For example, the report found that about 50% of financial wealth in these economies is allocated to bank deposits. The Asian cash drag expands this to 10 economies – China, Hong Kong, Indonesia, Japan, Malaysia, Singapore, the Philippines, Taiwan, Thailand and Vietnam – and finds that high levels of cash holdings are not exclusive to developed economies and the challenges associated with low or negative real deposit rates are similar across the region.

Michael Dommermuth, President, International Asset Management, Manulife Asset Management, expanded on this, explaining: "Many people are aware that inflation lowers real interest rates. However, not many take into account factors such as income tax and credit risk. These factors have serious implications for returns on deposits, but vary widely across the region, highlighting the importance of asset managers having local-market knowledge when advising investors on retirement planning and offering appropriate saving and investment solutions."

Manulife Asset Management used input from on-the-ground investment professionals across its Asian network to develop the Bona Fide Real Returns measure, which quantifies the effects of these factors in markets across Asia:

  • Income tax – The effect of taxation on bank deposits depends on government policies, but can be a heavy burden. For example, depositors in Indonesia, Japan and the Philippines are subject to relatively high tax rates of about 20%.
  • Credit risk – This refers to the potential for a bank to default on either interest payments or repayment of depositor holdings and is closely tied to the quality of the deposit insurance schemes offered by governments. While the developed economies examined are generally highly rated by international credit rating agencies, the risk can be substantially higher in developing economies such as Vietnam.
  • Inflation – Interest rates in many economies are significantly undermined by inflation, with deposits in Hong Kong and Singapore having delivered inflation-adjusted returns of -3.3% and -4.0%, respectively, as at end-2012, which implies a loss of purchasing power on deposit holdings.

Dommermuth commented: "With responsibility for retirement income security increasingly shifting to individuals across Asia, Bona Fide Real Returns reveal a troubling picture for those saving for retirement and for elderly households that rely on accumulated wealth to meet day-to-day expenses. Bona Fide Real Returns clearly illustrate why bank accounts should not be treated as long-term investment vehicles across the countries and territories we examined.

"Instead, savers and retirees should consider a range of investment alternatives that include fixed income and asset allocation solutions and, increasingly, high-dividend equities."

As an example, Manulife Asset Management recently launched an Asia Pacific equity income strategy and began offering a related retail product in Hong Kong with a monthly distribution option in late August.

Morten Frederiksen, Hong Kong-based lead manager for the Asia Pacific Equity Income strategy, explained: "Asia Pacific high-dividend equities are an increasingly attractive investment segment. Dividends and payout ratios have been rising steadily across the region, and this trend is expected to continue. Dividend yield is currently above 3.0% for the region1 and is expected to continue growing at 7-8% per annum over the next few years2 as companies in the region have strong cash flows and generally healthy debt levels.

"The strategy is market cap agnostic, with the flexibility to invest in attractive small-, mid- and large-cap stocks which meet our investment criteria. We apply a bottom-up investment strategy to identify companies with attractive valuation, competitive positioning, solid management teams and the potential for sufficient future cash flow to sustain or even increase dividend payouts over time."

Dommermuth concluded: "The need for income-oriented investment solutions is a common theme across Asia. We are uniquely positioned to deliver our capabilities across multiple platforms such as mutual funds, pension funds and investment-linked products, enabling us to best meet local investor needs."

Notes to editors:

Bona Fide Real Returns

Manulife Asset Management's Bona Fide Real Returns measure shows the actual return on bank deposit holdings after adjusting nominal bank deposit rates (the rate posted at the bank) by subtracting the prevailing inflation rate, withholding taxes and a credit risk premium (an estimated charge to reflect bank credit risk and deposit insurance arrangements). 

10-year annualised Bona Fide Real Returns





Hong Kong
















Note: For the period 1 January 2003 to 31 December 2012

Source: Manulife Asset Management based on data from Deloitte, Fitch, Moody's, S&P, The People's Bank of China, CMPN, Bank of Indonesia, Bangko Sentral ng Pilipinas, The Bank of New York/Taiwan Cooperative Bank, Bank of Thailand, IMF and respective national statistics offices.

About Manulife Asset Management
Manulife Asset Management is the global asset management arm of Manulife Financial. Manulife Asset Management provides comprehensive asset management solutions for institutional investors and investment funds in key markets around the world. Manulife Asset Management also provides investment management services to affiliates' retail clients through product offerings of Manulife and John Hancock. This investment expertise extends across a broad range of asset classes including equity, fixed income and alternative investments such as real estate, timber, farmland, as well as asset allocation strategies. Manulife Asset Management has investment presence in the United States, Canada, the United Kingdom, Japan, Hong Kong, Singapore, Taiwan, Indonesia, Thailand, Vietnam, Malaysia and the Philippines. In addition, it has a joint venture asset management business in China, Manulife TEDA. It also has operations in Australia, New Zealand, Brazil and Uruguay. John Hancock Asset Management, Hancock Natural Resource Group and Declaration Management and Research are units of Manulife Asset Management. Manulife Asset Management was named Best Asian Bond House for 2011 by Asia Asset Management. As at 30 June 2013, assets under management were US$247 billion. Additional information about Manulife Asset Management can be found at

About Manulife Financial
Manulife Financial is a leading Canada-based financial services group with principal operations in Asia, Canada and the United States. Clients look to Manulife for strong, reliable, trustworthy and forward-thinking solutions for their most significant financial decisions. Our international network of employees, agents and distribution partners offers financial protection and wealth management products and services to millions of clients. We also provide asset management services to institutional customers. Funds under management by Manulife Financial and its subsidiaries were C$567 billion (US$$539 billion) as at 30 June 2013. The Company operates as Manulife Financial in Canada and Asia and primarily as John Hancock in the United States.

Manulife Financial Corporation trades as 'MFC' on the TSX, NYSE and PSE, and under '945' on the SEHK. Manulife Financial can be found on the Internet at

1 Dividend yield for the 12 months to 6 September 2013 based on MSCI Asia Pacific ex Japan, Bloomberg. 6 September 2013.

2 Citi Research based on Asia Pacific Ex Japan Index, 31 May 2013.

SOURCE Manulife Asset Management