As China’s affluent middle class continues to grow, so has their desire to invest more of their money in stock markets, including a strong interest in U.S. equities.
It’s fueled by the rise of mobile online trading, bullish trends in the U.S. stock market and the emergence of brand-name China stocks such as Alibaba (BABA), Baidu (BIDU) and Tencent Holdings (TCEHY). Reasons also include the growing interest among millennials to further balance their investment portfolio with securities.
Both came public in March. UP Fintech, better known in Asia as Tiger Brokers, raised $103 million. Futu raised $90 million. Futu and Tiger Brokers are seeing rapid growth, particularity among upwardly mobile Chinese consumers around age 30 with rising incomes.
According to international consulting firm Oliver Wyman, China’s affluent middle-class population is expected to reach 33 million by 2020, double the number in 2015. It expects expandable assets to grow to $6.7 trillion in 2020, up from $3.1 trillion in 2015.
Investment Trends In China Stocks
“As the private wealth of global Chinese investors grows, there is increasing demand for global asset allocation,” Tiger Brokers told Investor’s Business Daily via email. “The Chinese middle class wants to invest in Hong Kong stocks and U.S. stocks, as well as futures and warrants.”
Chinese consumers, historically, have saved lots of money in China banks to support their family over the long term. Second to that are investments in housing and the bond market. Low on the list of priorities has been investing in the stock market, but that is changing fast.
“Trading volumes have picked up in a very significant way this year,” said Brendan Ahern, chief investment officer at KraneShares, which runs several China-focused exchange traded funds. “Investors are coming back after a very difficult 2018.”
The slide in China’s equities market last year was largely a result of the trade war between China and the U.S.
“But with the prospect of a trade resolution they’re coming back into the market. New accounts are being opened and the number of investors is growing,” Ahern said.
According to Wyman, China is now one of the largest markets for online securities trading. That’s partly due to significant China stock market restructuring and the rise of online trading platforms.
China’s Tech Savvy Affluent Class
Wyman says China’s mass affluent class — younger, more tech-savvy and free-spending investors — now allocate more money to investments and consumption than savings. Their allocation of income toward financial products and Chinese stocks is on the rise. This includes investing in stocks that trade on Hong Kong and U.S. exchanges.
“Global asset allocation will become more important for many Chinese investors as they become wealthier and knowledgeable,” said Futu Chief Financial Officer Arthur Chen, in an email to IBD.
Among all asset classes, stocks are highly appealing to the mass population, “in particular the young generation,” Chen replied. “As long as your platform can engage your generation in a sticky manner, you can derive revenue in many different ways.”
Chinese are gradually demanding investments outside their country in order to diversify their risks and because of the exchange rate between the dollar and renminbi. There’s also the trend of China companies choosing to hold their initial public offering on U.S. markets, rather than on Hong Kong or China stock markets.
Alibaba and JD.com (JD), the two largest e-commerce companies in China, both list on U.S. exchanges. So does China search-engine leader Baidu. Tencent listed in Hong Kong but trades in the U.S. on the over-the-counter market.
China’s online retail securities market also has attracted its homegrown tech giants. Tencent invested in Futu Securities. Alibaba, last year, paid more than $500 million for a stake in Huatai Securities. Baidu has various financial technology plays, including Baidu Wallet, an online credit service and an online wealth management platform.
Online Trading Apps For China Consumers
A variety of companies now offer online trading services to Chinese consumers, including top traditional financial institutions. Others include Huatai Securities and PingAn Securities.
More recently, players such as Futu and Tiger Brokers have targeted the affluent middle class with online trading apps.
Tiger Brokers’ Tiger Trade is a financial technology platform designed for both first-time investors and veteran traders to access global capital markets. Those investing money in Tiger include investment guru and Wall Street billionaire Jim Rogers. Another investor is China-based Xiaomi, a maker of smartphones, laptops and other products.
The Tiger Trade platform enables investors to trade in equities and other financial instruments on multiple exchanges around the world.
“We have built an active online community for individual investors,” the Tiger spokesman said.
Futu’s Social Networking Play
Futu’s trading platform, called NiuNiu, allows individual investors to trade securities. That includes stocks, warrants, options and exchange traded funds, across different markets. The platform includes a social networking element. That allows users to exchange market views, watch live broadcasts of corporate events and participate in investment education courses.
These new online trading companies offer low commissions. Investors can execute trades using a mobile or desktop app with limited involvement from brokers.
Chinese investors are bringing a new investment behavior to global markets. They’re driven by internet-centered lifestyles and influenced by their nation’s technology giants. These tech giants have nurtured an online ecosystem. There’s also a wide range of consumer services and have significantly changed the daily behavior of Chinese consumers and investors.
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