Chinese households feel the squeeze from falling stocks in struggle to preserve wealth

A survey finds that many individual investors are shunning stocks in favour of bonds, cash or overseas assets

PUBLISHED : Wednesday, 15 August, 2018, 8:08pm
UPDATED : Wednesday, 15 August, 2018, 11:11pm

Chinese households are shunning stocks and mutual funds while increasing their holdings in bonds and foreign-currency assets as they look to lessen the risk to their wealth from volatile equity markets, a survey by China’s Bank of Communications showed.

The bimonthly survey of 1,827 Chinese households conducted by market research firm Nielsen for Bocom found that 27 per cent of respondents had plans to buy shares in August, compared to 39 per cent two months ago.

About 30 per cent meanwhile said they would increase investment in money market funds, which focus on bonds and interbank transactions, up 4 percentage points from two months ago. About 27 per cent said they would buy foreign assets, up 5 percentage points from the last survey.

The survey results show the difficulty facing China’s middle classes in finding ways to grow their savings as the country’s equity markets, traditionally the main investment option, slump. The benchmark Shanghai Composite Index has fallen 17.7 per cent from the end of 2017 and has lost 2.1 per cent this month alone.

Adding to the problems was the bust of the peer-to-peer (P2P) lending boom in China, after the government cracked down on platforms that were meant to be facilitators for people looking for finance but which were in many cases investment vehicles that promised huge returns that often turned out to be unrealistic.

In July more than 100 such platforms disappeared with investors’ money, after 65 in June and 10 in May, according to Wangdaizhijia, a provider of data on the online lending business.

Amid all the risk, some individual investors say that they are running out of options.

“I would think the real situation is even more grim than the survey result,” said Wang Qingyu, a Shanghai-based official at a state-owned company, who saw his wealth fall by 20 per cent from his stock market investments this year.

“Middle-class households have lost confidence in wealth management, and the best way to manage assets now might be to deposit all their cash in bank accounts.”

China stocks officially in bear territory, lose market cap bigger than Canada’s entire economy

But in one bright spot, the weakening of China’s yuan currency has made it cheaper to buy assets overseas, a trend that has also been encouraged by the simmering US-China trade war that has investors looking elsewhere to avoid risk.

On Wednesday, offshore yuan dropped about 0.3 per cent against the US dollar, trading at as low as 6.9286, the lowest level in 20 months.

“The trade war is likely to be a drawn-out battle and it will take some time before the impact can be fully assessed,” said Lian Ping, BoCom’s chief economist, adding that yuan is under pressure to fall further due to the measures the US is taking to narrow its trade deficit with China.