Banking & Finance

Going public

The changing face of China’s retail investors


Stock trading is no longer purely the preserve of the wealthy and well connected. That is one of the more powerful messages to emerge from the David-versus-Goliath struggle between retail investors and hedge funds over GameStop and other heavily shorted stocks in the last few weeks.

The argument is that stock trading apps and social media are democratising finance, whether Wall Street likes it or not. Retail investors are storming the castle walls of more seasoned investors. The very identity of Robinhood – the trading app favoured by the new breed of traders – adds to the sense of rebellion against the status quo.

In China the rules of the game have been changing as well. Retail investors have long bemoaned their lowly status in the A-share market, describing themselves as ‘dim sum for the financial crocodiles’ – references to how they are often swallowed up by in-the-know insiders and professional asset managers. Smaller share traders want a change of status. But instead of taking the battle to the institutional players by ganging up on share-buying sprees, many of them are pulling back from trading individual stocks and buying into professionally managed funds.

According to CCTV, the state television channel, nearly half of the new fund management accounts opened last year belong to young people born after 1990. “This new group of investors have come to the conclusion that investing in funds is better than picking their own stocks,” the broadcaster reported.

This helps to explain a record year in the asset management industry. Shanghai-based consultant firm Z-Ben said China’s ‘public fund’ industry (funds which raise capital from everyday investors, largely equivalent to mutual funds in the West) grew nearly 50% to Rmb20 trillion ($3.1 trillion) in 2020. Newly launched funds also attracted record net inflows of $389 billion, up nearly 90% from a year earlier.

The strong momentum has carried over to 2021. According to financial data provider Wind, 17 public funds were launched in the first two weeks of this year, raising at least Rmb5 billion each.

One new launch by popular house E Fund Management last week brought in nearly Rmb237 billion in subscription money. Such was the demand that investors were typically getting just 6% of their requested allocations, a record low for the sector.

The means of raising funds has evolved too, given the age group targeted. In fact fund managers are trawling for new business on social media, knowing that it is fertile ground for younger investors. Private WeChat groups are prime recruiting spots for new clients and some asset managers have even taken to livestreaming to sell new launches, drawing inspiration from the KOLs who champion the latest range of consumer goods.

Households in China put just 2% of their assets into stocks and equity funds, compared to 7%-9% in the US, Japan and Europe, Essence Securities reported in a research note last month. But in many cases, inexperienced customers have been choosing new products that lack an established performance, the Financial Times has reported, with the booming market already stoking fears of bubble.

Many of Wall Street’s most successful bankers and brokers often try to keep a lower-profile. That’s harder in China, where investors have even been setting up fan clubs for their favourite fund managers. The fanfare helps to drum up more interest, of course, with thousands of new contributors signing up with star performers such as E Fund’s Zhang Kun, the first fund manager to have under management more than Rmb100 billion in assets, according to news portal Huxiu.

There is nothing too spectacular about Zhang’s investment of choice. His favourite stock for a while has been Kweichow Moutai, now the most valuable A-share. Zhang started to build his position around 2013 when the rice wine distiller’s prospects had been torpedoed by an anti-graft crackdown. Moutai’s share price has since spiked 20 times but Zhang has held onto his shares through the stellar recovery. According to Moutai executives there are less than 10 fund managers who were able to resist the temptation to take profit and hang onto their Moutai holdings for more than five years. Zhang is one of them.

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