CITIC SEC: Asset preservation and appreciation is the core pain point for stock market clients, with clear differentiation between high-end clients and the general public.

CITIC SEC released a research report stating that the core demand of customers for asset preservation and appreciation has not been met. Faced with the core pain points of asset preservation and appreciation, the needs of high-end clients and the general public are clearly differentiated. High-end clients aim to align with global family office clients by increasing global asset allocation and investing in alternative asset categories, while the general public aims to accumulate retirement funds through bank deposits, bank wealth management, money market funds, bond funds, and index ETFs. In this process, it is expected that private banks, family offices of various backgrounds, third-party platforms, and securities companies will benefit. CITIC SEC's main points are as follows: Core pain point for customers: asset preservation and appreciation. After four years of intense fluctuations in the stock market, the core demand of customers for asset preservation and appreciation has not been met. According to Wind data, as of the end of the third quarter of 2024, 82% of stocks and hybrid funds issued in 2020 and 2021 are still in a loss-making state, corresponding to an initial managed capital size of approximately 910 billion yuan. Customers and institutions, facing reality, are seeking solutions for future asset preservation and appreciation based on their own resource endowments. Differentiated demands 1: High-end clients' cross-border services + global asset allocation. On one hand, corporate equity assets are the most important wealth for high-end clients. Facing geopolitical shifts and global industrial chain reshaping, companies need to transition from product internationalization to industry internationalization. Banks, securities firms, asset management firms, and third parties need to collaborate across licenses to provide clients with industry research, overseas mergers and acquisitions, overseas financing, legal consultation, compliance risk control, and other support services. On the other hand, financial overseas expansion through asset allocation is also a common demand for high-end clients. Given the wealth scale of successful entrepreneurs and their increasing level of awareness of wealth management, alignment with international standards is being achieved. Referring to the global family office asset allocation structure, high-end clients should address the shortcomings in overseas asset allocation and alternative asset allocation. According to the Morgan Stanley Private Bank's "2024 Global Family Office Report", the categories of global high-end client asset allocation from highest to lowest are: alternative assets 45.7%, listed stocks 26.3%, fixed income and cash 20.9%, other 5.0%, commodities 1.6%, infrastructure 0.5%. The larger the family office scale, the higher the proportion of alternative asset allocation. The higher the proportion of alternative asset allocation, the stronger the risk tolerance of family assets; the higher the proportion of listed stock allocation, the stable global stock return over the past 15 years. (Specific regional allocation structure can refer to MSCI ACWI IMI.) Differentiated demands 2: General public index-based investments. According to the United Nations' "World Population Prospects 2024" report, China's dependency ratio in 2025 will be 34%, reaching 80% by 2050, while in 2023 the replacement rate of pensions (heavily reliant on the first pillar) is only 46% (the internationally recognized comfortable level is 70%), urgently needing to supplement pension deficits with property income. Looking at economic cycles, demographic structure, financial structure, and social governance, the asset allocation structure of Japanese residents in 1990 is instructive. In the past three years, the general public has increased allocations to deposits, bank wealth management, insurance, money market funds, and bond funds, while reducing holdings in active equity funds and increasing allocations to index ETFs. As actively managed funds have cyclical characteristics, their ability to outperform the Shanghai and Shenzhen 300 Index is declining year by year. Competitive landscape 1: The starting point for global competition in the high-end client market. Combining the prominent demand for client privacy protection and strong decision-making autonomy among Chinese clients, a single family office is the preferred choice for clients. Family offices are the market for global competition. Due to the limited channels for Chinese capital allocation overseas, such as QDII, QDIE, QDLP, mutual recognition of funds between mainland China and Hong Kong, and the pilot program of "Cross-border Wealth Management Connect" in the Guangdong-Hong Kong-Macao Greater Bay Area, overseas family offices have an advantage in global asset allocation and alternative asset allocation. However, due to the strong trust relationship between banks and securities firms and entrepreneur clients, Chinese family offices have unique advantages in client understanding. According to McKinsey research, currently, 3/4 of Chinese clients' assets are managed by local asset management companies. Competitive landscape 2: Advantage of the wealth management ecosystem. User online trading habits and the development of ETFs are strengthening platform advantages. As of the end of the third quarter of 2024, the total scale of equity ETFs and cross-border ETFs exceeded 3 trillion yuan, surpassing the scale of actively managed equity funds. From overseas experience, the development of passive investments helps solve investment problems efficiently and cost-effectively. In the first half of 2024, Ant Fund, Tian Tian Fund, and Teng An Fund ranked 1st, 3rd, and 16th, respectively, in the scale of public offering fund sales. As platform market concentration increases, their negotiating power with securities companies and fund companies is also growing. Risk factors: Downward macroeconomic growth affects household wealth; willingness of residents to invest in asset management products remains low; large fluctuations in the capital market; real estate recovery falls below expectations or property prices fluctuate significantly; significant fluctuations in interest rates or unexpected credit risks; regulatory policies tighten unexpectedly; industry competition intensifies beyond expectations.