Research report finds only 5 percent of rich Chinese have assets overseas
Chinese individual investors should adopt a global approach and diversify investments to reduce their risk, a new report has advised after China's latest stocks turmoil.
Randolph B. Cohen, a senior lecturer at Harvard Business School, and CreditEase Corp, a peer-to-peer lending and wealth management company in Beijing, released a research report on Saturday that said more Chinese focus on saving money rather than spreading their assets, and have only short-term investment strategies for the stock market.
"A single-channel investment strategy－for example, just investing in the stock market－will be of high risk, given that the global economy has entered a period of relatively lower growth," Cohen said.
China's benchmark Shanghai Composite Index fell by 10 percent last week, with the market shutdown on Monday and Thursday after plummeting share prices triggered the so-called circuit breaker.
"As the Chinese stock market is primarily composed of individual investors rather than institutional investors, single-channel investment ... will make investors more vulnerable to risk," Cohen said, adding that diversified assets reduce costs and risks for individual investors.
"It's like the saying that you can't put all your eggs in one basket."
Globally, high net worth individuals invest on average up to 24 percent of their assets overseas, according to the report. However, for Chinese individuals it is just 5 percent.
"There are plenty of opportunities for Chinese investors to accumulate their wealth by investing overseas," Cohen said.
David Leung, managing director and head of wealth management for Standard Chartered Bank (China) Ltd, agreed that individual investors, especially those with high net worth, should allocate part of their assets overseas rather than having assets overly concentrated in the domestic capital market.
"Investors should broaden their horizon to invest globally, take more time to do research before making decisions on asset allocation, and learn from the investment advice of professional financial institutions," he said.
According to a latest wealth management advisory report by Standard Chartered, released on Friday, investors will need to be even more vigilant than in 2015 and adapt to a changing investment landscape.
"We believe a high level of diversification and a more tactical global approach to investing may be required to help improve returns while also trying to avoid some of the likely pullbacks in risky assets such as equity markets," Leung said.
