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China middle class investors look abroad through online apps
Investing abroad has long been out of reach for most Chinese, but a handful of internet apps aim to make it a possibility for a rising middle class.

The summer’s stock market plunge and the devaluation of the renminbi have dented the confidence of many Chinese who had been content to keep their money on the mainland. Their investment options were limited to low-yielding domestic deposits, a volatile real estate market, bumpy stocks or keeping their cash under the mattress.

Capital outflows by wealthy Chinese have ballooned this year, with the US Treasury recently estimating that $500bn left China in the first eight months of the year.

“If China is growing and the renminbi is appreciating, it makes sense to keep your money in China,” says Mike Peng of Crystal Stream, a venture capital fund backed by Beijing-based group Hillhouse Capital. “But everyone can see the Chinese economy is slowing down and the currency depreciating, so it makes sense to hedge.”

Mr Peng says even he did not know how to buy foreign stocks from China until a few months ago, when a friend told him about Futu Securities, an online broker that markets Hong Kong and US stocks to mainland investors.

A number of new apps may make investing abroad easier still. These include Micai, a company backed by Crystal Stream, which helps mainland Chinese buy stocks overseas. Launched three weeks ago, it advertises itself as China’s first “robo-adviser” app.

Greg Van den Bergh, the company’s chief executive, says the minimum investment is $5,000, much lower than minimums at banks and brokerages that cater solely to the wealthy elite.

“Offshore [investment] used to be something that was nice to have for wealthy individuals; now due to the [renminbi] devaluation and uncertainty, it is becoming a must-have for them. And at the top end of retail investors it is now a must-have as well,” says Mr Van den Bergh.

One challenge is heavy government regulation. Capital controls are a roadblock and a few eagerly anticipated reforms, such as the Qualified Domestic Individual Investor Programme — aimed at smoothing the way for individuals to convert into and out of renminbi for overseas investments — have been delayed in the wake of the stock market crisis.

Other reforms have proceeded, however. Last November, the government launched the Shanghai-Hong Kong Stock Connect, a service that allows mainlanders to buy Hong Kong shares. That was followed in July by a mutual fund recognition programme between China and Hong Kong and cross-border sales of products.

The internet is being used to further refashion traditional finance in China, as companies including Alibaba and Tencent take on established state-owned banks.

One example is Yue’E Bao, a savings product Alibaba launched two years ago, which achieved mass appeal by offering money market interest rates to depositors that were above the fixed rate for bank deposits.

Investing abroad is another such area where nimbler internet groups have often been able to fill niches that state banks have been slow to address.

But China’s foreign exchange laws are still a drag on the sector. Micai and the other app companies to which the Financial Times spoke require users secure their own foreign exchange, which for individual Chinese is capped at $50,000 per year.

“It’s still very cumbersome,” says Ken Xu of Gobi Partners, a venture capital firm in Shanghai that is looking to invest in the sector. “You still have to handle the exchange into USD yourself.”

While Micai relies on partners to invest customer funds, Futu Securities and Tiger Brokers, another online broker that received a $15m investment from smartphone maker Xiaomi last month, have been gathering investors and marketing their services online to reach mass audiences.

In July, Tiger Brokers launched Tiger Stocks, an app that requires a minimum investment of just $3,000 and is aimed at attracting Chinese investors to the New York Stock Exchange and the Nasdaq. It says total trading volume that month was $100m.

Futu Securities, which recently raised $10m in a funding round from investors led by Tencent, launched its own app, Futu Niuniu, to buy Hong Kong and US-listed stocks. It has a Hong Kong brokers licence and trades US stocks through BNP Paribas with no minimum investment.

“It’s really the younger generation that wants to invest abroad,” says Futu Securities. “They see the quality stocks are mainly companies listed abroad, like Apple. Even Chinese companies such as Tencent and Alibaba are listed abroad.”

Financial Times

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