Will China's rich enrich Morgan Stanley

Implications: This article announcing Morgan Stanley's plans to invest in Jutian Fund Management is important because it reveals another component of Morgan Stanley's investment strategy.   It also indicates that wealthy Chinese may be a more lucrative target for foreign investors, as opposed to the potential billion retail accounts.

Analysis: Morgan Stanely has had a presence in China since the early 90's, ahead of all of its Wall Street competitors.  They have established contacts, have invested in a large formerly owned government bank, created a joint venture securities firm and a smaller regional bank.

In all of its other acquisitions, the key to profitability is maintaining their local-ness.  The average Chinese consumer and retail bank customer is extremely loyal and has no knowledge or expectations of Morgan Stanley's expertise.

One exception to this key, is the wealth management business.  China has slowly begun to allow its citizens via certain banks to invest their foreign currency income in foreign securities via the QDII regulation and this has proven extremely popular.  Due to the lack of a liquid long term bond market in China and equity markets with artificially high prices, the Chinese have little investment alternatives.  The government has already admitted that the real estate market is out of control and will ultimately have to allow its people, particularly wealthy people, to go outside of the country to invest their money.  When this happens (and if the laws permitting it limit such investments to foreign currencies, similar to QDII -it can happen quite quickly) Morgan Stanely will be perfectly poised to service such investors, who appreciate their reputation and expertise.

Jutian is a perfect choice for this strategy, as it is located in Shenzen, which is a short ferry ride from Hong Kong.  Mainland Chinese currently residing in Hong Kong or even Hong Kong citizens will be attracted to such a close fund manager.