PremiumSHENZHEN : In a Shenzhen milk-tea shop popular with social media influencers, mutual fund manager Deng Jingdong pins a lapel mic to his shirt, stares down the barrel of a camera, and starts livestreaming to his 400,000 viewers.
To rack up more likes and followers, offers of cash giveaways and free bottles of Kweichow Moutai—the fiery liquor coveted by China’s elite—flash across the screen while Deng extols the virtues of his new fund for Invesco Great Wall Fund Management Co., the local arm of US-based Invesco Ltd. Hosted on the ubiquitous Alipay app, viewers can click an icon and be taken to a page where they can buy directly into the fund, which invests in food, beverage, travel, and health-care stocks that are listed in China and set to benefit from consumers buying more expensive products.
Welcome to the cutting-edge and cut-throat world of China’s 18.3-trillion yuan ($2.8 trillion) mutual funds industry, where traditional fund distribution networks like banks are overwhelmed by colourful and noisy livestreamers. Globally-renowned names—such as BlackRock Inc and Vanguard Group Inc—hold little clout among the young, tech-savvy investor class. The shift has gathered steam as covid-19 lockdowns fostered an online shopping boom.
“Every asset manager is jumping on the bandwagon," says Ken Kang, the Shenzhen-based chief executive officer of Invesco Great Wall. “Livestreaming is really a new phenomenon this year, but it has taken off fast."
Last year, Invesco Great Wall relied mostly on text and voiced-based social media to promote products, but this year, it’s gone all-in on livestreaming, with fund managers hosting more than 90 sessions. During Deng’s appearance, graphics show his returns, industry experience, and a rough breakdown of the fund’s holdings to entice viewers to become investors.
For foreign companies trying to break into, or win, a bigger slice of the market as China opens up its financial sector, it could be an alien and at times bizarre environment. Funds backed by international companies raised $470 billion from mostly Chinese retail investors in the first eight months of the year, less than half the $967 billion raked in by more than 100 local rivals, according to data compiled by Morningstar Inc and Bloomberg. Of the 10 biggest funds raised, only two were backed by foreign companies.
The disruptors
Online presence and engagement are extremely important in China," says Yoon Ng, a senior director at Broadridge Financial Solutions Inc, which provides financial technology services for companies including asset managers. For foreign companies “to compete in the market, you need to move very fast".
The shift comes as a generation of tech-savvy digital people reach an age where they have enough money to invest and are looking for ways to increase their wealth. Online platforms are playing a rapidly increasing role, most notably in the past five years, after popular sites obtained fund-sales licenses to sell mutual funds.
East Money Information Co.’s 1234567.com.cn, one of the largest third-party distribution platforms, sold 659 billion yuan of funds last year, beating traditional distribution giants such as Industrial & Commercial Bank of China Ltd.
“In the past, fund management companies would be quite happy if a new fund collected 2 billion to 3 billion yuan in its initial launch," says Lu Haiyang, CEO of Hongtai Wealth, the distribution unit of investment group Hongtai Aplus. “Now a well-known manager can easily raise more than 10 billion yuan if online distribution channels are used."
With 1.3 billion mobile internet users, more than any country in the world, China’s tech platforms have disrupted the Chinese finance sector. Led by Ant Group Co. and Tencent Holdings Ltd, a raft of new but pervasive players have uprooted sectors from loans to insurance to asset management. Ant has sold mutual funds to more than 500 million people and is distributing products for more than 20 asset managers, including Invesco’s local venture. The fintech giant offers livestreaming services for asset managers on its Alipay app, which has one billion users.
The market is ultracompetitive. Other platforms, including those operated by Nasdaq-listed Bilibili Inc and TikTok’s owner, ByteDance Ltd, are racing to beef up their finance channels to attract viewers keen on learning how to invest. That’s prompted a race for talent.
Among local finance influencers, few command as loyal a following as Zheng Zhiyong. A 10-year fund veteran, he operates personal accounts on multiple platforms under the nickname “Wangjing Bogle", an homage to Vanguard founder and index fund legend John Bogle. Based in Beijing’s Wangjing tech hub, Zheng has almost 500,000 followers on Alipay and more than 200,000 on China’s Xueqiu, an investment-focused, Reddit-type site, and 1234567.com.cn.
Almost 3,000 members pay him 1,000 yuan ($153) a year for access to his daily investment picks. Zheng chooses lower-fee funds, like certain exchange-traded funds, for his portfolio and buys on internet platforms, which often offer low subscription fees compared with bank channels. He says this gives his followers a cost advantage in the long term over banks and other distributors who pick higher-fee products to earn higher commissions.
Zheng is also paid to host livestreams. Part cheerleader, part quizmaster, he’s paid about 20,000 yuan by asset managers to co-host segments with their fund managers. While regulations prohibit him from offering investment advice, he brings a significant following. “The Chinese model is quickly evolving from the old US model to an internet-based one," he says.
After a decade working for fund management and securities firms, Zheng went solo in 2018 on internet platforms and quickly gained popularity. He couldn’t have picked a better time. China’s population has become more affluent, and the younger generation is increasingly eager to invest and learn from professionals.
The IPO boom
The clearest indication of that rising appetite for investment is the boom in initial public offerings (IPOs). This year, China Inc raised money at home and overseas via IPOs like never before, buoyed by the country’s early emergence from the pandemic.
Firms like the healthcare affiliate of e-commerce giant JD.com Inc and gaming platform NetEase Inc listed in Hong Kong and helped boost initial public offerings and secondary listings from Chinese companies to a record $129 billion in 2020, according to data compiled by Bloomberg.
Mainland firms, listing in the US, Hong Kong, and on Chinese exchanges, made up as much as 37% of the value of global offerings this year. This was China’s highest share of the worldwide IPO pool since 2009 when the global financial crisis sapped listing activity in the US.
“China has clearly seen the fastest recovery of any of the major global economies this year," said Francesco Lavatelli, head of equity capital markets, Asia Pacific, at JPMorgan Chase & Co. adding that equity investors seeking returns amid low interest rates have flocked to Chinese shares.
They managed this feat despite two major headwinds: The shock suspension in November of fintech giant Ant Group Co.’s $35-billion dual Hong Kong-Shanghai float and the passing by the US Congress of legislation earlier this month that would force Chinese companies to delist from American exchanges unless they comply with US auditing rules.
In fact, Chinese companies had anticipated a stricter stance by the US toward them even before the passing of the legislation and had been seeking out Hong Kong listings as a hedge against being banned from trading stateside. During the year, a spate of so-called “homecoming" listings raised billions of dollars in Hong Kong share sales in 2020. That came on the heels of New York-traded Alibaba Group Holding Ltd’s secondary offering in the city last year.
The flurry of deals—especially in the tech and health-care space, both areas that thrived during the pandemic—upended banker concerns early in the year of an IPO drought.
As the novel coronavirus outbreak raged on, fears of muted equity capital markets activity dissipated. Companies affected by covid-19 lockdowns raised funds in record levels to shore up their balance sheets.
“Sitting on the sidelines putting your cash in a bank account is costly at the end of the day," said Gaetano Bassolino, head of global banking, Asia Pacific, at UBS Group AG. “That has really changed the way investors look at risk."
IPO volumes in the US also hit an all-time high this year, with about $173 billion in total raised not just from listings by the likes of American tech startups Airbnb and DoorDash, but also Chinese electric vehicle maker Xpeng Inc and online property broker KE Holdings Inc.
At home, China accelerated reforms in its IPO market, allowing wider daily swings in newly listed shares. Hong Kong had eased rules for new-economy listings in 2018, opening the gates for tech firms with dual-class shares to go public in the city.
Most of the biggest listings by Chinese companies this year have had some tech element. Chipmaker Semiconductor Manufacturing International Corp.’s $7.5 billion July listing in Shanghai is the biggest float this year by a Chinese firm, followed by the $4.5 billion secondary listing in Hong Kong by Nasdaq-traded JD.com Inc in June.
The queue of listings and investor appetite for new stock show no signs of slowing even as the year comes to a close. On the back of the best-ever month for global stocks, JD’s health-care unit raised $3.5 billion in Hong Kong and went on to surge 56% on its debut last week. Mainland toymaker Pop Mart International Group Ltd jumped 79% on its first day of trading three days later.
“Investors are looking for sustainable growth and there are three places you are going to find it: Technology, healthcare, and China," said Udhay Furtado, co-head of Asia equity capital markets at Citigroup Inc in Hong Kong.
Limits of livestreams
While interest in China might be peaking, understanding the country’s internet landscape is key for global companies; because a successful online fund launch typically requires a well-orchestrated strategy involving not only big platforms such as Tencent and Alipay, but also financial news portals and the distributors’ own platforms, Hongtai’s Lu says. To be a hit, funds need to synchronize promotion across media platforms before opening up subscriptions to users on multiple distribution channels. “When people across all platforms start paying attention at the same time, panic-buying could be induced" and sales will spike, Lu says.
Atlanta-based Invesco, which has been in China since 2003, knows only too well how different the local market can be. It’s placed such an emphasis on catering to local habits that it’s even created short, dramatic, imperial China-themed anime in which Chinese emperors and their concubines discuss mutual fund investment strategies.
Even so, Invesco’s Kang says it’s hard to measure how effective the company’s marketing dollars are at bringing in new users and fund purchases. While Invesco can track the number of clicks, viewers, and comments for its livestreaming sessions, it’s unclear whether the people become customers, he says.
China’s online platforms are also rife with bots, and livestreaming viewers and comments can be fabricated. In a research report published in November, short-selling firm Muddy Waters accused video streaming platform Joyy Inc of creating bots to generate fake transactions and users. Joyy said in a company statement responding to the Muddy Waters report that it contained numerous errors.
Meanwhile, fund manager Deng and his colleagues continue to take turns livestreaming on Alipay almost weekly. Deng’s performance—5.5 billion yuan of assets under management and a 31% return for his best fund—is laid bare for all to track on East Money.
“China is going through a consumer spending upgrade, and it’s happening especially fast in smaller cities and rural regions," he says during his livestream, as a bartender shakes a cocktail behind him. “That’s creating a lot of investment opportunities among emerging local Chinese brands."
