BCG: Chinese offshore allocation to hit $2trn by 2020

Added 23rd June 2016

Market volatility, interest rates and yuan depreciation are driving Chinese investors into offshore investments, said David He, partner and managing director of Boston Consulting Group.

BCG: Chinese offshore allocation to hit $2trn by 2020

The consultant expects investors to double asset allocation to overseas markets in five years, to 9.4% in 2020 (or $1.98trn of new assets) from 4.8% in 2015, according to the latest BCG research report released on Wednesday.

“The stock market upheaval has strengthened investors’ attention to risk control," He said in the Annual Wealth Management and Private Banking Asia in Hong Kong.

"The falling interest rates pushed demand for more alternative investments, yuan [depreciation] triggered their appetite on offshore asset allocation, and finally the home price polarisation means investors are more willing to diversify their assets."

HNWI trends

Chinese HNWIs with more than RMB 100m ($15.2m) of investable assets have been the target of private banks, which sell them offshore products. But now demand is growing for investors with less assets, between RMB 6m and 100m, He said.

The trend is set to benefit domestic private banks, as the wealthier groups tend to be the clients of foreign banks, He added.

In the past, roughly 60% of the investable assets among Chinese investors were put into domestic real estate. But according to the BCG survey, 54% of HNWIs expected home prices in the third and fourth-tier cities to fall in the coming 12 months.

Among the 1,074 Chinese high net worth with investable assets over RMB 6m polled by BCG, only about 27% said they have overseas investments, the report showed.

For those who haven’t tapped into overseas markets, over half said they will consider doing so, the report showed. The main reasons were capital preservation and growth amid RMB volatility.

Chinese investors prefer overseas investments that they are familiar with, He said.

For instance, the most popular asset class remains overseas property, in particular the US, Canada and Australia. "These regions are more relevant to their children's destination of overseas study."

Even for overseas equity and fixed income products, Chinese HNWI have a preference for Chinese companies, for example, the blue chips listed in foreign markets, or bonds and preferred shares issued by Chinese developers, He noted.

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