What do Chinese retail investors really want? – Lessons from the LendIt China conference

Written by Denis Suslov || August 01 2016

Kapronasia was co-organizing the PitchIt part of the LendIt 2016 event in China and we had a chance to talk to a number of exciting fintech start-ups. Two of the pitching start-ups are targeting Chinese retail investors but they do this in a very different ways, which, in fact, tells us a lot about the mindset of retail investors in China; the start-up which understands the market better wins. 

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Mini Jiaoyi (Mini Trading) is a Chinese start-up developing an app for users to trade derivatives on popular indices (Heng Seng, A50) and commodities, such as oil. The start-up describes itself as “A highly addictive, gamified trading platform on Minis, designed to suit the local demands for fast pace, low capital trading avenue that offers very high returns.” Let’s look at the three “demands” in more detail.

Fast pace: Many investors want to be able to enter and exit their investments quickly and a few prefer a long-term holding horizon. That is the reason behind the recent boom-and-busts on Chinese financial markets, such as the stock market rout of 2015 or the commodities boom of 2016.

Low cap: a low investment threshold is also important, as many retail investors want to trade with spare cash, and large lot sizes may stop them. Small lot sizes also means price movements will be larger, creating a higher volatility – exactly what investors are looking for.

High returns: this is related to the volatility mentioned above, and although high returns are obviously possible, they are not guaranteed. Still, Chinese investors are used to high returns, because of the years of the growing real estate market and the expanding economy in general. Furthermore, some investors do not fully realize the concept of risk-return tradeoff and focus on high returns when making their investments. Therefore, the Mini Trading app provides more of an entertainment experience: an “addictive” game based on financial derivatives.

Ginmon, another start-up who presented at the event, take a completely different approach. Its app helps investors in China to invest globally through the company’s platform. Ginmon is not promising high returns and minimum investment size is substantially larger than Mini Trading’s and, as such, expected investment period is longer. Simultaneously, the company is addressing two other investment needs.

First, Ginmon provides easy geographical and currency diversification. Some economists say that diversification is the only “free lunch” in economics, and that’s exactly what domestic investors’ portfolios are lacking. Also, that many investors are looking to increase their shares in non-RMB currencies to prevent value loss from the expected RMB depreciation.

Second, the platform’s major feature is the robo-advisor functionality, which helps investors determine their portfolio allocation based on their investment goals, financial situation and risk preference. (Although Ginmon was the only robo-advisor at the start-up pitch part, it wasn’t the only RA present at the conference – Betterment was one of the companies opening the first day, and CreditEase with its Toumi RA was a major participant too.)

The difference in approach taken is clearly visible: robo-advisors like Ginmon appeal to the logical and sensible part of Chinese investor’s mindset, the part that is interested in the long-term performance, is aware of risk/return trade-offs and is ready to exit the comfort zone of RMB and domestic stocks in favor of diversification. The Ginmon also assumes that investors will realize that entrusting asset management to machines programmed by professional investors is a better idea than trying to succeed in the market by themselves.

Which start-up will attract more investment flows? Who’s right about the need of Chinese investors? Or will both companies find their customers in this large market?