Nearly 16% of Mainland travelers from four key mainland cities – namely Beijing, Shanghai, Guangzhou and Shenzhen – currently invest in funds in Hong Kong, according to a report sponsored by the Hong Kong Investment Funds Association (HKIFA).
Funds were the second most common type of financial products being taken up by the Mainland travelers in Hong Kong – after HK$ deposits (18% indicated that they had HK$ deposits).
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Out of the Mainland travelers who invested in funds in Hong Kong, about 95% said they would consider to make further investments in funds in the next 12 months. Amongst non-fund investors, 55% also said that they have similar plans.
The survey was conducted by Nielsen in December 2013 and this is the second year that Nielsen conducted this survey. The survey aims to track Mainland travelers’ financial needs and usage of investment funds and other investment products. (Notes 1 and 2)
According to the survey, about 2.4 million Mainland travelers from these four cities visited Hong Kong in 2013, up by 21% over 2012.
As for the purpose of visiting Hong Kong, 16% of them came to Hong Kong solely for investment purposes, slightly up from the 14% registered in 2012.
To facilitate analysis, the respondents have been grouped into five cohorts according to the liquid assets being held in the Mainland and Hong Kong, namely:
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By GlobalData- Mass (Below HK$100,000);
- Mass Affluent (HK$100,000 – 499,999) ("MA");
- Emerging Affluent (HK$500,000 – $999,999) ("EA");
- Affluent (HK$1 million – 4,999,999); and
- VIP (HK$5 million and above).
Amongst the various cohorts, VIPs in particular attached great importance to investment, with 30% citing that the reason why they visited Hong Kong was purely for investment purposes. The Affluent cohort came second, at 27%.
The intention to invest was particularly strong amongst fund investors – with 52% of the fund investors indicating that they came to Hong Kong solely for such purposes.
Compared with 2012, fund products enjoyed an increase in penetration, from 13% in 2012 to 16% in 2013. Out of all the respondents, 62% would invest in funds in the next 12 months. This translates to around 1.5 million potential fund investors.
Amongst the respondents who had invested in funds, more had been making fund transactions in 2013 – 75% of the fund investors had made at least one transaction in 2013, up from 54% in 2012. On average, 3.9 transactions were made in the year, with each transaction involving about HK$24,000. In 2012, each investor made three transactions and the value per trade was about HK$22,000.
The average dollar value per transaction for the Mass and MA cohorts was below HK$11,000; whereas for the VIPs, the amount was substantially higher, at HK$46,373.
The range – from HK$11,000 to HK$46,000 plus reflects the flexibility of fund investment: while typically lump sum investment in funds would require a minimum of HK$20,000; there are lower thresholds such as investment linked insurance policies or monthly savings plans, that can be taken out for regular investment purposes.
In terms of risk appetite, for Mainlanders who had been investing in funds in Hong Kong, it seems that they were more ready to go higher up the risk curve.
In general, 50% of all the respondents were ready to accept a loss of up to 15% to 20%. The risk tolerance of fund investors seemed to be higher: 66% indicated that they were willing to accept such a risk level, probably reflecting that they had larger financial wherewithal to brace for short term market volatilities.
As to why financial products being sold in Hong Kong appealed to Mainland investors, the key reasons cited were a wide array of product choices (32%), more reliable (28%), good customer service (26%), better returns (25%) and convenience/flexibility (24%). On average, each Mainland traveler had invested in 3.4 financial products in Hong Kong and 3.7 products in the Mainland.
With respect to the criteria for selecting product providers, diversity of products came first. Brand image and fees/charges ranked second and third respectively.
Another key factor was whether the provider provided CIES services. 61% of the respondents considered the provision of CIES-related services to be important and 57% of the respondents indicated that they would consider lodging an application under the CIES in the next few years.
To Mainland travelers, "brand image" was synonymous with "trust" and "good word-of-mouth/reputation". Over 65% of the respondents cited these two factors respectively, way above the other factors, which took up by about 40-50%.
Besides, as Mainland travelers typically would only stay in Hong Kong briefly, online services took on huge significance: 64% of the Mainland travelers believed that it was important that product providers offered online services. Moreover, 57% looked for 24 hours service support.
In terms of distribution channels, 39% of the Mainland fund investors indicated they had bought funds through banks; and 25% via insurance companies. Meanwhile, other financial institutions, e.g. independent financial advisers, in fact played an even more important role, with 46% citing that they had bought funds through these channels.
As to what types of fund products Mainland investors would most likely take up in the coming months, it seemed that Hong Kong/Mainland products have the greatest potential – four out of the top five popular products mentioned were related to Hong Kong/Mainland China themes (equity, bond, currency and balanced funds).
Bruno Lee, chairman of HKIFA Unit Trust Subcommittee said: "based on the survey, currently more than one million travelers from these four key cities are already investing in Hong Kong financial products. It is likely that this will double in the next 12 months.
"Hong Kong is a very sophisticated fund market – it has a robust regulatory framework, sound infrastructure, a wide array of products and a large pool of professionals that span across the whole value chain.
"We are pleased to note that more and more Mainland investors have started to leverage on this platform and make use of funds to structure portfolios to meet their investment needs. We believe that as more initiatives are being undertaken by the relevant authorities; and that closer cross-border ties are being forged, this trend will only continue to grow.
"With the increasing affluence of the Mainland population, there would be increasing needs to look for alternative channels of investment to effectively deploy their financial assets. Hong Kong is well positioned to cater for these burgeoning needs; and we believe that investment funds will assume a pivotal role. HKIFA is committed to developing investor education and other initiatives that can enable mainland investors to fully capitalize on the products and services offered in Hong Kong to structure portfolios that can cater for their investment needs."
