Research indicates that investors will favour strong brands over rapid, short-term gains as they become more sophisticated
Report provides first-ever detailed examination of the attitudes and behaviours of the individuals who invest in China's stock market
A new study released this week at a reception at the House of Commons hosted by Lord Wei with WPP has revealed that while investors in the China stock market are currently motivated by short-term profits, they increasingly seek brands that will provide longer-term value. The report – Unmasking the Chinese Investor – takes a deep and comprehensive look at the attitudes and behaviours that drove the dramatic stock market fluctuations of 2015. It also explores how the stock market in China is maturing, and the impact this will have on the importance of brands.
Almost 100 million investors, 7% of China's population, invest nearly one quarter of their annual income into the stock market (Source: The China Statistical Yearbook). The BrandZ™/Millward Brown research found that these investors remain optimistic, and intend to continue investing. They believe they will realise the Chinese Dream of a better life within the next 10 years, and do not plan to change their spending. This is reflected in the growth of the BrandZ Top 100 Most Valuable Chinese Brands, which have increased in value at double the rate of the BrandZ Top 100 Most Valuable Global Brands.
Most Chinese investors are relatively inexperienced, the study finds, with about 60% having traded stocks for five years or less. Currently, 91% seek short- or medium-term opportunities that will deliver a fast, substantial return, and pick stocks based on their potential to generate immediate profit.
However, the BrandZ/Millward Brown research indicates a trend towards more rational and strategic behaviour. Those investors with more than five years' experience are curating portfolios for long-term gain, looking for the sustained return on investment that accrues when a brand is able to grow shareholder value. They are interested in brands with the same characteristics that consumers desire: a quality product and service experience, strong leadership, and difference from the competition.
Separately, Millward Brown's BrandZ data shows that strong brands drive share appreciation. The MSCI China index has dropped 10.7% over the last six years, while the share prices of brands in the China Top 100 have risen 43% over the same period.
David Roth, CEO EMEA and Asia, The Store WPP, comments: "The volatility of the Chinese stock market makes understanding the individual Chinese investor critical. As they gain in experience, their attitudes and behaviour will shape the evolution of China's financial markets. Listed companies must communicate a strong financial story, highlighting their brand growth strategies and innovations to attract active and enthusiastic Chinese investors."
Doreen Wang, Millward Brown's Global Head of BrandZ, says: "As investors' knowledge increases, brand strength will become the key determinant for business success in China. The potential rewards are great for those businesses that can reach individual investors and continue to build brand appeal as investors become more sophisticated. Increased investment in being unique and innovative will play an important role, as will frequent communication that clearly shows how a brand is relevant and is improving the lives of its target consumers. Chinese consumers who enjoy and trust a brand are more likely to invest in it."
Highlights of the report include:
- Investors were not discouraged by 2015's roller-coaster stock market. Almost three-quarters increased or made no change to their holdings, though they do plan to be more careful about doing research and controlling risk. Most investors reported making money over the past year, with about one quarter earning a 20-50% return on their investment; only a fifth indicated they lost money.
- Optimism prevails. 44% of investors believe that the stock market decline will have no effect on their ability to realise the Chinese Dream. Almost half expect a delay, but do think the Chinese Dream will happen. They do not plan to change their day-to-day spending, but will postpone some one-off major ‘big ticket' purchases such as real estate. This means the impact will be minimal for luxury and other brands targeting shoppers who travel from China.
- The investment horizon is short-term. Investors look for fast, high returns, and choose volatile stocks that require frequent trading for optimal profit. Approximately 85% of investors hold less than a handful of stocks, picking dynamic brands with rapid growth potential from nearly any industry. A new, small brand has as much opportunity as a large, well-established one to draw investor interest.
- More experienced investors have a longer-term perspective. Around 15% of Chinese investors base decisions on brand characteristics such as the ability to provide quality products and services with benefits that meaningfully differentiate the brand. They hold on to stocks longer, and manage a portfolio of brands from selected industries.
- Brand will become an increasingly important consideration. Corporate reputation and brand influence the consumer product-buying decisions of 81% of Chinese investors, but when it comes to investing they are less concerned about factors required for long-term brand health. This should change as the Chinese investor community matures and investors attempt to build portfolios that yield long-term results.
- Chinese investors are active traders, with 38% trading stocks one to four times per week. 61% conduct most of their trading online; 28% of the time using a mobile device. They also check their holdings almost obsessively, with 80% checking at least once a day.
- Decisions depend on more than financial analysis. Chinese investors do research company reports and news articles, but are more likely to take their cues from individuals they know. This means that building trust and developing relationships with consumers is key to building investor confidence, by driving positive word-of-mouth endorsement.
The BrandZ/Millward Brown Unmasking the Chinese Investor study builds on the power of BrandZ™, our unparalleled resource for brand equity knowledge, and the insight into Chinese consumers and brands gained from six years of the BrandZ Top 100 Most Valuable Chinese Brands report. To carry out the study, WPP's Millward Brown China conducted quantitative and qualitative research among investors throughout the autumn of 2015, just weeks after the stock market's most recent decline.