Despite China’s attempts to open up new investment channels, most of its middle class appear unwilling to diversify overseas and remain heavily allocated to cash, leaving them vulnerable to house price and inflationary shocks.

A survey* by US investment services firm Charles Schwab indicates that China’s emerging affluent – those with an annual income of $40,000-800,000 – have not become the savvy investors their wealth might suggest.

Apart from nearly half of their money being held in cash or cash equivalents, only a small minority of those surveyed had a financial adviser (12%), and they didn't sufficiently use online news sources to guide their decisions.

The main reason for the overly cautious approach appeared to be a lack of confidence, financial education and available investment choices.

Of all those surveyed, 45% of their money was held in cash or cash equivalents, 20% in individual stocks (mostly in China or Hong Kong), 9% in mutual funds (excluding money market funds), 7% in individual bonds, 5% in exchange-traded funds and 14% in ‘other’ investments.

One reason for the investing attitudes was cultural, with China traditionally a country of savers, said Lisa Hunt, executive vice-president for international services and special business development at Charles Schwab.

A key solution was to focus on financial literacy through education, she argued, and schemes such as Stock Connect are opening up the chance for investment diversification.

Chinese emerging affluent investors tend to make a progression from doing a lot of real estate investing to putting their money into cash, as they don’t know where else to go, said Hunt.

They were overexposed to property, with more than twice as much allocated to real estate as non-property assets, she added, which left them very vulnerable to housing price shocks.

Moreover, despite their risk-averse nature, 41% of surveyed investors were trading stocks at least 36 times per year.

This, said Hunt, contradicted respondents' claims of being cautious, since they had a portion of their portfolio trading at institutional-level frequency with a very short-term horizon. “That, combined with the large cash holdings, does not provide the type of diversification or portfolio that a risk-averse investor should have. It screams risky, but they think they’re not.”

The survey also showed that new technology is not being used in China as much as it should to improve investment decisions.

The most popular method savers are using to access their money is online banking (77% of respondents) However, only 37% use online investment platforms and just 16% are using mobile phones for banking and investment.

When making investment decisions, a large proportion use newspapers (43%) and television and radio (28%) more often than digital sources.

*The study was conducted by Tsinghua University School of Economics and Management for Charles Schwab. The survey is based on 714 interviews held between June 30 and July 11, 2014. Survey participants had a household annual income of Rmb250,000 to Rmb5,000,000 ($40,000 to $800,000) and less than $1 million in investable assets.