Mainland emerging middle class loves cash and property, worries about stock volatility

The number of affluent Chinese is growing. They prefer real estate and cash as investments and do not trust financial advisors, a survey showed.

PUBLISHED : Thursday, 26 May, 2016, 4:33pm
UPDATED : Thursday, 26 May, 2016, 9:05pm

The rising number of affluent Chinese — those with annual after-tax income from 125,000 yuan to 1 million yuan — still prefer to invest in real estate and keep cash, a survey of 450 mainlanders by Charles Schwab and the Shanghai Advanced Institute of Finance showed.

The research was conducted at the end of last year.

“There is increased fear around volatility after the A share crash [in June last year]”, Charles Schwab Executive Vice President Lisa Hunt said.

The Shanghai and Shenzhen markets lost 29 and 32 per cent respectively in three weeks that ran into early July.

Hunt said a lack of investable products and transparency in the terms of buying into those intangible assets are putting off investors. A total of 70 per cent of them cited market volatility as their biggest investment concern, the survey showed.

The investors surveyed put two-thirds of their investable assets into the property market on average, while 45 per cent of the non-property assets were held in cash and cash equivalents.

Equities still made up 20 per cent of their non-property assets and only 8 per cent of investors had investment overseas.

“Compared with high-net-worth people, who are richer, the emerging affluent person has fewer choices because there are minimum capital requirements on some products,” Hunt said.

The systematic risk in China’s economy, inflation, and the yuan currency’s depreciation will hurt those investors who thought cash is perfectly safe, Hunt said.

About 54 per cent of the emerging affluent, who are usually well educated, say they would invest in an asset with a lower but guaranteed return, as they pursue money for children and a better retirement life. However their behaviour can be speculative, with 48 per cent of respondents saying they would halve their a holding in a stock if its price declines.

“Most investors in China are indeed risk-averse,” Zhu Ning, a professor at the Shanghai Advanced Institute of Finance said. But “the government and media create a layer of ‘guarantee’ which leads many investors to believe many otherwise risky investment are safe.”

There is a lack of trust between financial advisors and mainland investors. Emerging affluent investors rely heavily on friends, family and media for investment knowledge and only three out of ten seek professional advisors, the survey showed. Only one-third of them seek help from professional advisors, among which 77 per cent do not think the advisor cares about the clients’ investment goals

“The quality of financial advisors on the mainland is very poor, at least that is what investors perceive,” Hunt said.

“Financial advisors should focus less on selling their products, but plan for their clients,” Hunt said. “I am still confident that this will happen on the mainland.”

Investors’ education is still the key issue to be solved and the financial industry should develop to a client-centric, customized-solution model of wealth management services, Hunt said.

China’s emerging affluent population will grow to 280 million by 2020, compared with only 120 million in 2012, and will contribute 35 per cent of domestic consumption by 2020, the study showed.

This story has been amended to reflect corrected figures relating to the share of investments held in cash and cash equivalents.