Individual Chinese investors are investing more overseas, but it remains challenging to meet their return expectations, noted product gatekeepers at AsianInvestor’s Fund Selector Forum in Hong Kong yesterday.
Panelists on the event's opening session said mainland mass-retail and wealthy investors’ appetite for foreign exposure had risen due to various factors: increased local market volatility, renminbi devaluation, a property market downturn and more market-opening via cross-border schemes.
However, getting mainland clients to look beyond Hong Kong appears to be easier said than done – it is clearly their first stop, especially in light of the Stock Connect and mutual recognition of fund (MRF) schemes.
Danny Howell, head of offshore wealth management at Chinese peer-to-peer lending platform CreditEase, said that in the past four years the proportion of mainland high-net-worth individuals' (HNWIs) holdings of foreign assets had doubled from 20% to 40% and that of ultra-HNWIs had risen from 50% to 60%.
Josephine Lee, Hong Kong head of wealth management at Citi, pointed to China A-share 30-day volatility of 68% as a significant factor driving mainland investors to move offshore. She added that the average transaction size of Citi’s Chinese clients was generally 20-30% bigger than those done by its Hong Kong-based retail clients, and sometimes mainlanders' equity trades were three times as big.
Meanwhile, government measures to cool the mainland real estate prices have influenced local high-net-worth investors’ thinking on what has been a staple asset class for many years, suggested Belle Liang, head of investment advisory at Hong Kong’s Hang Seng Bank. “They see the importance of reducing overall portfolio risk, and to hold a single asset [class] like property is not enough.”
The panelists agreed that Chinese individuals’ investment approach was maturing. For instance, they are growing less speculative and more long-term in their outlook, and they increasingly look for portfolio management advice. They are also considering global funds, balanced funds, dollar-denominated bonds and alternative assets, in a shift away from their focus on more tactically driven interest in thematic equity funds.
A growing range of cross-border investment programmes, such as the qualified domestic limited partner (QDLP) and qualified domestic insitutional investor II (QDII2) schemes, are providing wealthy Chinese individuals with easier access to foreign assets.
Moreover, they are investing offshore not just for diversification, but also because they want physical ownership of assets in different markets, said Hamilton Yuen, Hong Kong head of product development at US insurer MetLife.
Yet despite such shifts in behaviour, Liang said it was difficult to meet mainland clients’ high return expectations. What they consider a typical annual ‘risk-free rate’ has fallen from 8% but is still around 4-5%, she noted, while the expected annual yield for equities stands at 20% and at more than 10% for fixed income.
And even if you have sellable products, you need a network through which to distribute them. William Ma, Hong Kong chief investment officer at Chinese wealth management firm Noah Holdings, and Howell of CreditEase stressed the importance of a local presence for accessing the domestic market.
“The ability to face clients directly, to explain and demonstrate investment processes really makes a big difference in terms of long-term [client] stickiness,” said Ma, who joined Noah this month at its first Hong Kong CIO, as reported.