Property made up about 37% of the country’s personal assets last year. But a marked shift is underway that could see the property figure drop to 26% in less than a decade, while investments in bank and fund company wealth products were on track to shoot up to 21% from 13% last year, said Hans Fan, CLSA’s Hong Kong-based head of China fintech and financial research.
“What does it mean for their financial institutions?” Fan asked at the Chinese brokerage’s annual Hong Kong forum. “It means that the household balance sheet is a gold mine.”
Fund companies, fintech companies and banks are expected to double revenue in the wealth sector to 2.1 trillion yuan by the end of this decade, driven by a jump in investment management fees, Fan added.
The size of China’s assets under management surged by more than 15% to US$10.97 trillion by the end of 2021 from a year earlier, making it the fourth largest after the US, Luxembourg and Ireland, according to data from the Asset Management Association of China.
Property and bank savings have traditionally made up the bulk of Chinese household savings.
But the real estate sector has been hit by a wave of bond defaults among debt-swamped developers that have left scores of residential projects unfinished, triggering an angry backlash from homebuyers and sending confidence in the sector tumbling.
Contracted property sales fell as much as 50% in July from a year earlier, according to data from investment bank Natixis.
That trend was likely to continue, spurring an “inevitable” shift from real estate into the wealth market, said Amin Rajan, UK-based founder of independent research boutique company Create Research.
“Property investing has caused huge wealth destruction,” Rajan said. “As society gets richer, households will also seek to diversify their growing asset base, with a balance of risky and non-risky assets.”
Chinese authorities have also been pushing for households to diversify their asset holdings with the government earlier this year announcing an expansion of a private pension scheme that lets households invest in a range of investments including funds and wealth-management products.
But the expected asset shift may stumble in the short term owing to choppy equity markets with Shanghai’s SSE Composite index tumbling almost 15% since the start of the year.
A monthly household survey by China’s central bank shows that the percentage of consumers opting to buy stocks and wealth management products fell in May to the second-lowest level since it started in 2016.
And investors are still looking for relatively safe assets such as bank deposits and fixed-income investments, which typically carry lower fees than plugging savings into mutual funds, said Allen Feng, a Singapore-based associate director with the China market research team at consultancy Rhodium Group.
“In the long run I would argue this asset shift is good for stock prices,” he added. “But in the short term what we can see within the central bank household survey is that investors’ preference for deposits/fixed income products is strong, but for equity and wealth management products, at this stage, is not very good.”
People who have already paid off their mortgage or own several properties will go “at full speed” to diversify their assets, while those still paying off home loans might have less flexibility to shake up their asset mix, said Alicia Garcia Herrero, Hong Kong-based chief economist for Asia-Pacific at Natixis.
Despite China’s capital controls, some may look overseas to chase higher yields, she added.
“Also, the stock market in China does not look promising given plummeting industrial profits,” Herrero said.