Economics & Finance
• 4 minute read
Investment Trends among High Net-worth Mainland Investors
Hong Kong remains the top offshore investment option for the mainland’s wealthy elite thanks to its proximity, low tax rate, cultural similarities and global access
By Sunny Yang , Sunny Yang is founder of Eastern Shore Int’l Ltd, Hong Kong. Yang is a registered financial consultant and a certified private banker. She graduated from CUHK Business School EMBA (Chinese) program.
Mainland China has more than 2 million high net-worth individuals (investable assets of US$1million) in 2015, according to a recent report by the Industrial Bank (China) and the Boston Consulting Group. Hong Kong remains the top offshore investment option for the mainland’swealthy elite thanks to its proximity, low tax rate, cultural similarities and global access. Eighty percent of them are under 50 years old and have a more open and aggressive investment style. Forty-seven percent of them are entrepreneurs, and 19 percent are professional managers.
Since five years ago, investors in China have been aware of the problem of tight cash flow caused by shadow banking. Among them, only the high net-worth individuals are interested in overseas assets. The trend of middle-class clients allocating their investments in overseas assets started to emerge. Clients from top-tier cities such as Shenzhen, Beijing, Shanghai and Guangzhou are generally open-minded and find it easy to accept the concept of allocating assets overseas. Since the end of 2014, Hong Kong has become a hot spot for mainland investors from 2nd-tier cities such as Chongqing and Chengdu for its insurance products.
Most of our Chinese clients tend to be risk-loving and prefer to buy stocks in Hong Kong and the United States. Though they are not familiar with the international market, their first choice is Chinese companies listed on the U.S. stock market. Following that, they are interested in investment-linked insurance products, which allow them to allocate assets through international mutual funds. Only a few clients are interested in life insurance products.
Meanwhile, fixed-return products like bonds and bank asset-management products have taken a smaller share of these clients’ investments.
According to the above-mentioned report, nearly two-thirds of the respondents said “wealth preservation” and “wealth inheritance” were their two top concerns.
In addition, 65 percent said they also wanted to leave their children a spiritual legacy, such as an understanding of the importance of hard work and the value of a good education.
We have seen customers’ attitude change from an ultra risk-adverse and very skeptical one to a more receptive one. They are starting to listen to some new investment ideas.
Compared with places like the United States and Australia, where mainland investors tend to buy property, Hong Kong is a popular choice for mainlanders to invest in stocks and other financial products. Before the Hong Kong government took Special Stamp Duty (SSD),Buyer’s Stamp Duty (BSD) and Ad valorem stamp duty (AVD), Hong Kong’s property used to be very popular among Chinese high net-worth clients due to the zero capital tax and zero inheritance tax policy. As Chinese tend to care very much about providing a good education for their children, they believe that overseas countries are more suitable for living and for their children’s education. As a result, the properties in the UK, Australia, United States and most recently, Japan, have become very popular.
It is important for clients to consider the different tax and local laws when allocating their assets overseas, especially when it comes to overseas property investments. The countries that are most popular among mainland property investors, such as the United States, UK and Australia, have capital gain and inheritance taxes. Compared with the situation in China over the past few years, the holding cost of property in overseas countries is high and there are specific restrictions. For example, Australian law prohibits foreigners from owning 2nd hand property.
With the tremendous drop of the A share market since June, more mainlanders have become aware of the risks associated with investments in the stock market and with the Chinese domestic economy. The panic-stricken mainland clients have requested for USD asset allocations. Thus purchases for Hong Kong insurance products have peaked during this time.
In this volatile time, the demand for financial advisors by mainlanders would only increase, and Hong Kong’s financial advisors have an edge thanks to their professionalism, education background, experience and integrity.