Q-Series: Chinese investing abroad: Could this be a US$ 1.7trn opportunity?

We believe Chinese households, currently sitting on around US$30trn of financial assets, could look to increase their cross-border investments due to macro (US/China interest rates, renminbi devaluation concerns), domestic pension reforms announced this year, and better market infrastructure. Key catalysts include border reopenings, and potential southbound eligibility for Hong Kong (HK) listings of foreign companies and overseas- index-tracking exchange-traded funds (ETFs). Following our Chinese capital market reform, this report focuses on outbound financial investment—mainly through Connect programme and offshore insurance. Our scenarios suggest trackable outbound financial investment could reach US$1.7trn by 2030E. We believe closed-loop mechanisms such as Connect programme could become mainstream outbound investment channels. UBS Evidence Lab data shows 80% of respondents would consider investing overseas in the future, averaging a 20ppt increase in overseas allocation—HK was the preferred destination for more than 70%, suggesting opportunities for global financial institutions in the city. We think a recent rise in Southbound Bond Connect's AUM helps confirm rising outbound investment appetite.

We expect regulatory support for China's pension development (total AUM is currently around 8% of GDP, versus 175% in the US), where growth in pension assets would support market institutionalisation and investment appetite for offshore exposure. We think there is ample room to expand the various Connect programmes as part of China’s efforts to reform its capital markets to promote two-way cross-border investment flows, potentially strengthening HK’s unique position as a conduit between China and global markets. US Treasury bond yields have already risen above Chinese government bond yields, reversing the trend since 2010—another offshore-asset demand catalyst.

Our Oasis scenario suggests trackable Chinese outbound financial investments should reach US$1.7trn by 2030E, implying the contribution to household financial assets grows from 1.0% currently to 3.1%. Our scenario assumes the healthy development and expansion of investment channels, including exchange-related Connect programmes (Stock Connect for stocks and ETFs, and Bond Connect) and non- exchange-related such as a potential expansion of Greater Bay Area (GBA) Wealth Management Connect's product eligibility and distribution channels. We expect HK insurance to remain an integral part of Chinese households’ offshore asset allocation.