Affluent Chinese looking to diversify risks and rebalance portfolios

19 December 2017 Authored by Consultancy.asia

The increasing number of wealthy households in China save an average of 30% of their total income and invest a further 20% across various fronts. A new report examines this diversification of investments, as well as explores how advisors might engage with this traditionally independent market, which rarely engages with wealth managers.

A new class of affluent households (those with more than individuals with RMB 650,000 to 6 million investable assets) has quickly risen to the forefront of China’s investment scene. Today the group counts over 15 million among its ranks, with the affluent class expected to more than double to 33 million by 2020.

The rise in affluence comes, according an analysis from Oliver Wyman, with a host of opportunities for businesses across various domains, with the wealthy increasing their net wealth from RMB 21 trillion in 2015 to RMB 45 trillion in 2020 whether, in terms of selling goods for consumption, new experience or increased demand for a range of services.Household savings ration by countryFirst and foremost, China is a nation of savers. The volatility of China’s welfare state means that if they are to be sure of security, individuals must save for hard times. While the pros and cons of this may be debated from an ethical standpoint, the saving rate for households across the country as a portion of income, stood at 39% in 2015 – well above that of Singapore at 19% and Taiwan at 18%. Key Western countries, such as the US and EU also have considerably lower saving rates, with the ratio at 5% and 4% respectively.

The largest share of Chinese income for those on RMB of 10,000 per month in 2016, was spent on consumption. That 67% was followed by 20% of the rest going to investments, and 10% being saved directly at a bank or equivalent.Allocation of additional incomeIn terms of consumption, holidays within China are the biggest ticket item for households, at 14% of consumption on average, followed by holidays overseas, at 10% of income. Food and drink, personal items and entertainment average 10%, 8% and 6% of consumption spending, respectively.

In terms of the allocation of investment, around 7% of households invested in financial products/funds, 4% in Chinese stocks/shares, and 2% invest in their own business while 2% invest in housing in China.Increase in investments across asset categoriesThe research notes that various investment vehicles are gaining increased attention. Financial products / funds saw increased attention from 55% of respondents in 2016, while investment in Chinese stocks / shares saw increased attention of 52%. Housing, insurance top-ups and bond buying were also notably up for various investment groups, at 38%, 31% and 24% respectively.

“The new mass affluent class, who are younger, more tech-savvy and free-spending, now allocate more money to investments and consumption than savings,” said Bernhard Kotanko, Oliver Wyman partner and co-author of the report. “Having suffered greatly from stock market volatility in recent years, investors are now looking to diversify risks and rebalance portfolios.”Investment preferences in the next 12 monthsThe research further highlights that investment preference in the next 12 months will increasingly focus on investment, with 50% preferring to make more investment than 18% preferring to increase cash savings. There was a general split on whether to invest more conservatively (38% of respondents) or invest more aggressively (28% of respondents), with similar results as to whether to increase investment for the long-term (33%) or the short-term (38%).

Self-reliant

In terms of self-knowledge relating to their investment ability, most respondents believe themselves to be at least good in making more investments, with those saying that they are investing more conservatively or increasing their short-term investment, relatively confident of their investment knowledge.Willingness to turn to investment professionalsWhile investment sentiment remains high for wealthy households, their willingness to consult a professional investment advisor in 2016 remained low, at 28% compared to 45% that said they prefer to make their own decisions. For financial advisors, this remains a key conundrum – a majority of households are simply unconvinced that external expertise can add value to their investments.

Respondents were also more likely to not pay for investment ideas and research. Instead, individuals preferred to pay for access to better trading systems/premium transactions which would enhance their nest eggs directly.

According to a recent study by McKinsey & Company, Chinese consumers are spending increasing amounts of money on cars, with in particular premium models from European manufacturers in high demand.

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