Nov 29, 2016
China’s Emerging Affluent Seeks More Than Just Short-term Investment Return
• Nearly half respondents invest to improve their standard of living. Long-term goals are important reasons for investing as well, with one-third hoping to support retirement and some hoping to fund education for children or grandchildren
• Seven in ten of the emerging affluent cite market volatility as their biggest investment concern, and tend to prefer “tangible” assets such as cash and real estate
• Only one-third of the emerging affluent have sought professional financial advisory services. Of those who have engaged with an advisor, just one quarter describe their advisors as “caring about my financial future and investment goals”
• Only 8% of China’s emerging affluent investors have assets overseas
Shanghai, May 24, 2016 – China’s emerging affluent may not be the homogenous, short-term gain-obsessed group of investors that many believe them to be. According to a recent white paper released by the Shanghai Advanced Institute of Finance (SAIF) and Charles Schwab & Co. Inc. (Schwab), this growing group is seeking long-term investment strategies to support their life aspirations, and their needs will drive the development of China’s financial industry.
“China’s Emerging Affluent Investors: Addressing Rising Expectations,” is a collaboration between SAIF and Schwab based on a survey of 450 investors, whose annual after-tax income ranges from RMB 125,000 to RMB 1 million, as well as 30 interviewees including industry players, scholars, and media representatives. The paper provides insights into the investment expectations and habits of China’s emerging affluent, a group expected to grow to 280 million people and to account for 25% of China’s total consumption by 2020.
“The emerging affluent class is a significant group whose consumption and investing power is playing an increasingly important role in shaping China’s economy,” says Lisa Hunt, Executive Vice President of International Services and Special Business Development at Charles Schwab & Co. Inc. “Their aspirations merit close examination.”
The white paper found that, rather than being a homogenous group, China’s emerging affluent investors have multiple reasons for investing. Respondents cited improving their living standards as their primary reason for investing (42%). In addition, 33% say they invest to support themselves in retirement, while 12% invest to fund education for children or grandchildren. “These emerging affluent want better lives for themselves and for their families, now and in the future,” says Prof. Ning Zhu, Deputy Dean at SAIF, “The rising costs of healthcare and education have been putting pressure on them, and that’s where investing can provide support.” Take retirement for example, China’s current national pension system provides far less than the US$ 1.79 million (RMB 11.1 million) desired by the middle class to have a comfortable retirement. This fact suggests middle-class Mainland Chinese investors have a desire to save for their retirement.
Despite their various aspirations, investment options for this group are limited. The research finds that “tangible” assets, such as cash and real estate are favored. Emerging affluent investors hold 45% of their assets in cash or cash equivalents, and they have more than twice as much real estate assets as non-real estate assets. Furthermore, only 8% of the emerging affluent have investment overseas. “China’s industry and policy environment play a role in Chinese investors’ lack of diversification,” says Prof. Ning Zhu. “For example, China has not developed a mature bond market yet, and that limits people’s investment options.”
Emerging affluent attitudes towards risk varies. In a certain sense, these investors are naturally prudent and defensive in nature. For example, a majority of investors (54%) indicate they would invest in an asset that offered a guaranteed, but lower, return on investment. Conversely, in other contexts the emerging affluent exhibit aggressive investing tendencies, such as market timing and jumping from product to product based on short-term speculation. One out of two (48%) survey respondents indicate that they would double down on a stock after a price decline in the hopes of capturing upside. According to SAIF’s Prof. Ning Zhu, most investors in China are indeed risk-averse. However, “the government and media create a layer of ‘guarantee’ which leads many investors to believe many otherwise risky investment to be ‘safe.’”
The white paper also finds that China’s emerging affluent are self-directed investors: they rely heavily on friends, family, and media for investment knowledge. Only one-third (32%) seek help from professional advisors. “Trust is a big issue here,” says Lisa Hunt. “The emerging affluent need to be respected and nurtured to be understood.” In this respect, China’s financial service providers lag behind their international counterparts. Only one quarter (23%) of the respondents who say they have engaged with a financial advisor describe their advisor as “caring about my financial future and investment goals.”
As the expectations of China’s emerging affluent rise, China’s financial industry will undoubtedly develop to cater to those expectations. Lisa Hunt comments that “We have seen this trend in many mature markets as a client-centric, customized solution-providing model of wealth management occurs due to client expectations. Given the emerging affluent’s rising expectations and the Chinese financial industry’s fast pace of growth, we are confident in saying that a similar business model will be a development focus here too.”
Shanghai Advanced Institute of Finance (SAIF) was established at Shanghai Jiao Tong University in April 2009, with strategic and financial support from the Shanghai Municipal Government. As a member of Shanghai's financial community, it strives to contribute to the development of Shanghai as a global financial center. SAIF's mission is to become a world class institution of research and advanced learning in finance and management. SAIF is committed to developing top talent and cutting-edge knowledge, with a focus on Chinese markets and their global connections.
About Charles Schwab & Co., Inc.
Charles Schwab & Co., Inc., member SIPC, is a US leading provider of investment services and products to individual investors around the world and registered investment advisors.
Charles Schwab & Co., Inc., 211 Main Street, San Francisco, CA 94105, USA / +1 800-838-6569
SAIF and Schwab are not affiliated to each other. Any verbal representations by one party are independent of the other. None of the information constitutes a recommendation by Schwab or a solicitation of an offer to buy or sell any securities. The information is not intended to provide tax, legal or investment advice