Since China’s Economic Reform and Opening-up policy that started some 30 years ago, Chinese investors have learnt abundant lessons within this relatively short timeframe, most recently, the plunge in the first week after the launch of circuit breaker mechanism. China’s stock market, crowded with retailer investors, has been historically filled with speculative speculation as most investors flocked to one rallying stock, regardless of its already high-valuation, and sell off a plunging stock in herds, causing one of the most volatile equity markets in the world.
A Bain’s research report showing that by the end of 2014, Chinese private wealth had hit 112 trillion yuan ($17 trillion)——the second largest private wealth management market next to the US — with per capita investing wealth of 82,000 yuan. However, deposit and banks’ wealth management products still take up the majority (66.5%), while securities take up 16.1%.
Early this week, China International Capital Corp (CICC), one if China’s largest investment banking and research services companies, urged Chinese investors to shift their investment strategy away from betting on appreciation of a single asset class and relentlessly go after a surging stock, to take a portfolio strategy, blending, for example, bonds, an asset class that does not in sync with stocks, with stocks that could diversify risks and reduce the volatility of the investment.
According to HSBC, Chinese onshore bonds was a rising star, with a 2.5-percent total return in US-dollar terms. “More Chinese mainland investors are entering the offshore bonds market with US dollars this year”, said Cecilia Chan, Asia Pacific fixed-income chief investment officer at HSBC Global Asset Management (HK).
In my opinion, it is time for Chinese investors to shift to portfolio investment, not only the traditional investment products like stocks and bonds, but also unconventional products such as commodities, currencies, private equity funds, real estate, and overseas assets. A diversified portfolio can help spread the risk of possible loss because of below-expectations performance of one or a few of them.
Rani Jarkas, the Chairman of Cedrus Investments.
Rani Jarkas is a highly experienced financial services executive, with over 20 years of international banking experience. Currently, Mr. Jarkas is the Chairman of Cedrus Investments, a global boutique investment firm. Cedrus’ domain expertise is in life sciences, natural resources, energy, cleantech and nanotechnology. – Rani Jarkas