Chinese millennials look beyond property investments to build wealth

LIKE millions of other young Chinese, Byron Zhang thinks he’s missed out. For his parents’ generation, investing in real estate was the surefire route to prosperity and security. Now, as prices slump, the population shrinks and unfinished and unsold apartments stack up, the dream of riding that boom has crumbled.

“If you still count on investing in property as a means of growing your fortune, you’re not quite right in the head,” says Zhang, 37, who co-founded a pharmaceutical startup in the tech hub Shenzhen.

Zhang and his peers aren’t giving up on building wealth. They’ve seen that a well-paid job can take them only so far, while the right investment can be transformative. Household savings have jumped to a record, official data show. Meanwhile, more than 90 per cent of university-educated Chinese citizens from age 22 to 32 say investing is a key part of their life plan, according to a February survey of 3,000 people by Invesco.

But where to invest their savings? Capital controls and regulations limit purchases of shares on overseas stock exchanges. Cryptocurrencies are banned. Bonds don’t yield enough. Returns from bank-issued wealth management products have slumped. And the Chinese government has essentially shuttered once-hot alternatives such as peer-to-peer lending that had attracted more than 50 million investors. Then there’s the domestic stock market, which older Chinese dismiss as a form of gambling after two epic boom-and-bust cycles in as many decades.

For years top US and European financial firms have viewed Chinese consumers as their next big opportunity. Young Chinese-the nation’s best-educated and highest-paid cohort ever-have changed retail in China. Already the biggest buyers for items including cosmetics and travel, they’re likely to boost their spending fourfold to 16 trillion yuan (S$3.1 trillion) by 2035, according to estimates by advisory firm China Renaissance.

Many companies expected that these young consumers would start pouring their money into the financial markets, leading a nationwide shift away from property as a source of wealth. Hans Fan, the head of China financial research at brokerage CLSA, estimates that cumulative flows into financial markets from all Chinese households will exceed US$18 trillion between 2021 and 2030.

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“The household balance sheet is a gold mine,” Fan told clients at the company’s flagship investors forum late last year. “A huge pie of new money will go towards professional managed products.”

Still underwater

But almost everyone in China has a family member or friend still smarting from stock market losses. From 2006 to late 2007, the benchmark Shanghai Composite gauge rose as much as 425 per cent, before losing more than two-thirds of those gains in the next year. The pattern repeated itself in 2015. While the scale was slightly smaller, the crash still wiped out more than US$5 trillion of value.

In both cases, a kind of frenzy swept the nation. Stories of rapidly made fortunes spread widely and drew in inexperienced retail investors, who rushed to chase a rally. Many of those who bought near either of the peaks are still underwater.

Frank Dong, 42, is one of them. His first foray into stocks was right at the top of the 2015 bubble. Then, in 2019, he thought he’d give the market another chance. Instead of buying an investment property in Shenzhen, Dong put his money into a mutual fund that focused on baijiu-a popular Chinese white liquor. The fund is now down 30 per cent. The apartment he could have purchased instead is up about 20 per cent.

“This experience has made me quite exhausted,” says Dong, a hydropower engineer in Beijing. “I do want to invest, but my experience with equities has been rather unpleasant.”

If Dong is feeling burned and wary, 25-year-old Beijing-based Frank Lee is outright dismissive. He points to the three years of Covid-induced turbulence and the government’s often sudden crackdowns on entire sectors of the market, such as technology, which crushed the value of once high-flying companies.

“The Chinese stock market is more speculative than crypto,” says Lee, who was educated at a US university and recently co-founded an investment advisory firm.

Cryptocurrency is banned in China, but investors find ways around the ban, such as buying directly from friends or using an overseas driver’s licence to open an offshore account.

Although about a third of Lee’s personal crypto holdings were stuck on the FTX platform when it collapsed last year, he says he still believes the best road to building wealth is through investing in alternative assets like crypto, venture capital or direct stakes in small and medium-size enterprises. He recently put money into an electric-car battery swapping station, for example.

“The biggest investment opportunity of our lifetime is our time,” Lee says. “That means investing in what we love.”

Money managers become stars

The wariness about stock picking could benefit the global investment industry. Back in 2018, individual traders accounted for 82 per cent of all trades. By 2022, after some extreme market turbulence, that had fallen to around 60 per cent, according to China’s securities regulator.

Instead, interest in professionally managed funds has surged. Since 2015 there’s been a fivefold increase in the number of funds in the market. Today there are 13,000 different mutual funds for sale, well above the investable universe (for most retail investors) of about 5,000 mainland-listed companies. In this crowded market, individual fund managers sometimes emerge as stars-or villains. In the good times, fan groups on social media site Weibo shower the high-performing managers with pet names, emoji and cheers. In bad times, insults fly.

During the pandemic, investors flocked to livestreams by mutual fund managers who would explain their credentials and returns before giving their views on the market. Interest in these livestreams has remained high, especially among younger Chinese. In 2022 almost 60 per cent of viewers were under 39, according to Huanju Tech, a platform that provides marketing services for financial institutions.

Jiahui Wang, 29, who goes by the alias Senior Sister Hui, is a major figure in this industry. As a host for China Asset Management, she’s run more than 100 livestreams, drawing 45 million views and 1.1 million likes over the past year. She says the division between generations is striking. On Xiaohongshu, which has an older user demographic, property-themed programming is popular. On Bilibili, videos about the downsides of real estate investing draw more viewers.

Young investors also want choice. Where the older generation predominantly bought products recommended by banks, the younger set “almost never buys in the traditional way-it’s almost entirely through Internet platforms”, Wang says. Tools such as the ubiquitous app Alipay allow users to purchase funds with a click.

Taking risks

Younger investors also seem hungry to maximise their returns. “They are eager to take on risk,” Wang says. “They want those funds that are heavy in one particular sector, rather than ones that are balanced. They want to be all-in.”

That doesn’t surprise Wei Li, a freelance writer based in Kunming, a subtropical city in southwest China. He cites a Chinese saying: Those with a lot of money can speculate, but those with no money must speculate.

That’s what he’s doing. In 2020, fearing a market collapse, he decided it was time to get out of real estate and sell his investment property. He put his profit, about 20 per cent, into an array of assets: stocks, cash and collectibles such as Lego sets and gaming figurines. The latter aren’t very liquid, but he enjoys them.

Like an increasing number of Chinese retail investors, Li also put money into convertible bonds, which offer the security of coupon income and principal repayment along with an option to convert the bonds into stocks if share prices go up. China is now the second-largest convertible bond market in the world, according to Swiss wealth manager Union Bancaire Priveé. Issuers range from big commercial banks to small-cap companies attracted to the market because it’s typically a cheaper place to raise money than traditional debt markets. The bonds are all rated and exchange-traded. Li, 31, is determined to get in early on the winning sectors of the future.

“The biggest opportunities for our generation lie in tech and culture and entertainment-related businesses,” he says. “Property and fixed assets, that cycle is done. We cannot repeat the success of our parents.”

Housing support

Millennials increasingly share the view of Chinese President Xi Jinping: Houses are to live in, not to speculate on. In many sectors of Chinese society, owning a house is still considered a prerequisite for marriage. Renting can feel like a waste of money.

“For me, buying a house is a rigid need,” says Lexi Huang, a 27-year-old human resources employee who lives in Shanghai. “I don’t want to keep paying rent and help the landlord to repay his mortgage.” Currently sitting on losses in her stock portfolio, Huang is considering investing in gold or just holding money in the bank. “I think it is better to hold cash and wait for market conditions to stabilise first before piling in,” she says.

Much of the recent surge in household savings was driven by a 3.8 trillion-yuan increase in fixed-term bank deposits, according to an analysis from the think tank China Finance 40 Forum. That’s despite a benchmark savings rate that’s been flat for years.

“There’s really just a lack of good investment options in China right now,” says Hao Hong, chief economist at Grow Investment Group. “People just don’t trust the stock market, as it is notorious for being speculative. Also, late last year there was a crash in the wealth management market. So people learned a very hard lesson.”

Meanwhile, back in Shenzhen, Zhang says he’s constantly looking for new opportunities, particularly high-tech startups. “I think if we grab on to one major opportunity in our lifetime, we can turn our fates around,” he says. BLOOMBERG