Hong Kong, Taiwan, and Singapore were ranked second, third and fourth respectively on the risk appetite index.
The study showed that investors in Japan have the lowest risk appetite and are the most conservative, keeping 41% of assets in cash.
Moreover, 75% prefer to invest in more stable blue-chip stocks compared to only 51% in China. Japan also has little appetite for high-risk penny stocks, which are favoured by only 12% of investors compared to 29% in China.
Chinese investors, as the biggest risk-takers in the group surveyed, are also more likely to make one-off investments in mutual funds, which suggests their desire to capitalise on market buoyancy for short-term gains, according to the report.
By comparison, Japanese investors tend to invest in mutual funds through regular installments and are also less concerned about timing the market than the Chinese. This suggests a more disciplined investment approach, according to the report.
Market analysts voiced concerns over bubbling in China’s equity market in mid-March, yet local investors still took on RMB1trn ($161bn) in debt to finance short-term investments in richly-valued stocks before the market peaked in mid-June, the report said.
"This does not suggest that investors should avoid risk," said Michael Dommermuth, executive vice president, head of wealth and asset management for Asia.
“Rather, we believe that investors should consider building a well-diversified portfolio that matches their risk appetite and has the potential to deliver returns that are commensurate to the level of risk.
"Playing it too safe, like many of the highly risk-averse investors in Japan, could hurt their ability to generate sufficient retirement income to maintain their living standards,” Dommermuth added.
Investors in Asia’s wealthy markets frequently express risk preferences that are contradictory to their investment actions.
Guaranteed income and capital guarantee were found to be the top two considerations when making any new investment. But investors still ranked equities as the most preferred investment.
Also, while China topped the risk appetite index, nearly 52% of mainland investors said they would like a guaranteed income before considering a new investment.
Despite the profile of Japan's investors as risk-averse, only 20% want to first see a guaranteed income before making a new investment.
In Hong Kong, over a third of investors worry about making the wrong investment decision (36%), yet their preference for direct investment in stocks is the highest (63%) among the wealthiest Asian markets.
Meanwhile, nearly half of investors in Taiwan (48%) say they are put off from investing in mutual funds because of concern about the risks involved, but conversely favor riskier penny stocks almost as much as investors in China (22%).