Chinese investors are urged to shift their investment strategy away from betting on appreciation of a single asset class and relentlessly go after a surging stock, according to China International Capital Corp, an investment bank.
The alert came after China's benchmark Shanghai Composite Index fell by 10 percent in the first week of this year, with the market shutdown on Monday and Thursday after plummeting share prices triggered the so-called circuit breaker.
China's stock market, crowded with retailer investors, has been historically rife with speculative speculation as most investors flocked to one rallying stock, regardless of its already high-valuation, and sell off a plunging stock in herds, causing one of the most volatile equity markets in the world.
Instead, CICC urged investors to take a portfolio strategy, blending, for example, bonds, an asset class that does not go in sync with stocks, with stocks that could diversify risks and reduce the volatility of the investment.
"In last June, investors had made a fortune in the unprecedented equity bull. At that time under the asset allocation principles, investors should invest their gains in the equity market into the bond market to keep their asset allocation ratio stable. However, many Chinese investors chose to bet more on the equity and ended up with great suffering," said Sun Dongqing, head of Wealth Management Department of CICC.
The brokerage cited an external research report showing that by the end of 2014, Chinese private wealth had hit 112 trillion yuan ($17 trillion)——the second largest private wealth management market next to the US -- with per capita investing wealth of 82,000 yuan. However, deposit and banks' wealth management products still take up the majority (66.5 percent), while securities take up 16.1 percent.
Besides traditional stocks and fixed-income products, CICC also suggested investors to get more exposure to unconventional products such as real estate, commodities, private equity funds and overseas assets.
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