Unique insights on how Chinese HNW think about investing can be gleaned from a major Chinese wealth management firm.

Beijing headquartered CreditEase said in its 2019 asset allocation recommendations report…

  • Investors should monitor two potential “turning points” of the global economy: a decline in economic growth in the US, and a significant decline in net liquidity injection by major central banks.
  • While the Chinese economy continues to be under pressure, domestic consumption (will make) more contributions, and “new economy” sectors, (will be) growing at a much faster pace.   (my comments in red below)

(interesting that they mentioned China’s slowing economy only as a 3rd risk.  But they may have a point on the US economy … US debt levels have reached an important negative milestone, US tax revenues have dropped on last year’s tax cuts, & US infrastructure spending could be stymied by the Democrats)

  • The key to investing in China is to invest in the “new economy.”  (biomedicine, telecommunications and specialist digital equipment was specifically mentioned)
  • The Yale Model should serve as an important reference for HNW when making asset allocation.

(When I was working with the hedge funds industry in the 90s and 2000s, we loved US university endowments such as Yale and Harvard  – because they would allocate more to hedge funds than a typical pension fund)

  • We are in the late stage of the economic cycle, and the momentum of growth has passed its peak. Meanwhile, the valuation of traditional assets stays high, and the volatility of open market is expected to remain high in 2019.
  • There exists also plenty of potential sources of uncertainties in 2019 including national economic policies, geopolitical conflicts, trade wars and elections in several countries.

Creditease also highlighted 8 markets for their Chinese HNW investors.

  1. The outlook for domestic private equity is positive, with valuation adjustment, strengthening advantages of top-tier managers, and value creation expected to be a stronger returns driver (versus value discovery) in the coming year;
  2. The performance for overseas private equity is expected to be steady, with a likelihood of heightened focus on small and medium-sized funds and industry specialist funds that have competitive edges;
  3. Public equity markets will continue to be volatile throughout the year, with long-only and alpha strategies having better probability to outperform market indices, and the recommendation of quantitative and CTA strategies;
  4. An increased allocation to overseas cash products is…..
  5. Global real estate sectors face some…..

Tim Cheung and I will discuss these and the other three factors at our Crazy Rich seminar in Melbourne 12 March, sponsored by Deloitte.

Meanwhile, the latest Significant Investor Visa statistics are due soon from the Department of Home Affairs.

The latest data is up to June 2018, so the industry is keen to see how many new SIV migrants have been approved since.   On recent trends, I am estimating around 100 in the past 6 months, equivalent to increasing the AFR Rich200 List by around 12% in cumulative (not individual) ‘wealth equivalents’.

To date, 2022 SIV, mostly from China, have invested $10.11 billion into Australia, through a $5m investment each.  The SIV programme currently mandates a 10% investment into Australian venture capital, 30% into ASX listed small cap stocks, and 60% into other qualified Australian investments (such as commercial property, bonds, non-bank lending, & listed equity) all via ASIC approved funds.

They have indirect and direct impacts, which will be explored at both the Pain and Gain in Western Sydney 20 March breakfast seminar, and Crazy Rich Melbourne seminar, both sponsored by Deloitte.

 

I hope to see you at these events.