The ultra-wealthy population in China, those individuals with a net worth of at least $30 million, is expected to increase by almost 50% in the coming years. Projections from a recent Knight Frank wealth report indicate that the number of ultra-rich individuals in China will rise to 144,897 by 2028 from 98,551 in 2023. This surge in wealthy individuals comes at a time when China’s economy is facing challenges and growth is slowing down.
Preference for International Assets
Despite the economic headwinds in China, the ultra-rich are adopting a “conservative” investment approach by channeling their funds into international assets. This shift is occurring against the backdrop of a stagnant Chinese economy, weighed down by a troubled property sector. While investments in international assets are increasing, the high-end property market in China remains a favored asset among the wealthy individuals.
There has been a noticeable uptick in transactions within Shanghai’s luxury real estate sector, attributed to recent policy relaxations by the government. China has eased several restrictions on property purchases, leading to a surge in new high-end property launches in prime locations. Luxury residences in Shanghai have become valuable assets for preserving wealth and liquidity for ultra-high-net-worth individuals, serving as a lucrative investment option in the current landscape.
While luxury real estate in Shanghai continues to be a popular investment choice, wealthy Chinese individuals are expanding their investment portfolios to include a diverse range of asset classes. Traditionally overweight on real estate and home-market equities, ultra-rich Chinese investors are now embracing currencies, private credit, private equity, U.S. treasuries, and developed market equities. This shift reflects a growing interest in international assets that offer capital preservation and higher yields in low-risk products.
Wealthy Chinese investors are increasingly allocating funds through schemes like Qualified Domestic Institutional Investors (QDII) and Qualified Domestic Limited Partnership (QDLP) to invest in securities outside of China. This trend towards international assets underscores a sense of investor defensiveness among wealthy Chinese, driven by uncertainties in the domestic economy and the broader geopolitical environment. Some investors are facing challenges in selecting hedge fund strategies due to a lack of skills, highlighting the need for comprehensive risk management strategies.
In contrast to their global counterparts, rich Chinese investors tend to have their wealth spread across numerous banks and brokers, lacking a consolidated view of their investments’ performance. This scattered approach to wealth management underscores the need for a more cohesive investment strategy that accounts for macroeconomic, geopolitical, and sectoral aspects to make informed investment decisions.
The evolving investment behavior of wealthy Chinese individuals signifies a shift towards a more diversified and risk-aware approach to managing their wealth. As they navigate through a changing economic landscape and explore investment opportunities abroad, wealthy Chinese investors are adapting their strategies to capitalize on international markets while mitigating risks associated with domestic uncertainties.