The teaming up of Vanguard and AntFinance made some headlines a couple of months back. Just last week, news broke that Backrock and Temasek jointly partnered with CCB (China Construction Bank) to enter Chinese market, with a possibility to bring Tencent into the team.
As an ordinary Chinese consumer, what does that mean for me?
Where do I put my money?
Nowadays, they don’t sit quietly in the bank anymore. Ever since AntFinancial offer better access to mutual fund, easier money transfer between families and friends domestically, I moved my daily wallet to Alipay. More importantly, I can park my money in their Yu’er Bao（余额宝） which put into a money market fund that offer slightly higher yield than bank deposit. The ease of access is what attracted me. I can also move my money back to cash easily within a few days.
About two years ago, I started to explore their “Fund Market” in the Alipay app. Simply put, it allows me to invest my money into most well established mutual funds such as Harvest and China Universal. The entry amount can be as small as 100 Yuan (~ $14), and the withdrawing of fund is also quite easy. As an individual investor, this enabled me to gain exposures to funds that are normally only available to institutional investors. I can buy into QDII fund that invest into Chinese stocks listed outside China. When I feel bullish about the liquor industry, instead of being barred away from those exceedingly high share price such as Kweichow Moutai, I can buy into an index tracking fund that holds most Chinese liquor stocks.
This is nice and convenient. I’m a buy-and-hold person. I want to gain exposure in valuable assets, and put my money to work on the companies and industries that are generating value to the society. The ease of access is a huge plus for me.
So Vanguard and BlackRock?
Good names outside China for sure. Yet to a citizen of Middle Kingdom, they are yet to establish their track records. I appreciate their risk control and prudent approach of money management. To yield hungry Chinese retail investors, their returns might be moderate. But this will change. For a few more market cycles, investors will be educated into consider risk adjusted return. One lesson already took place in 2015. It is when the time was tough, we knew who was the value protector of assets.
It makes sense for both Vanguard and BlackRock (V&R) to enter. After all, they are in the scale business. The growing size of China’s middle class does offer that level of scale like no other markets. And the fintech giants such as AntFinancial and Tencent’s WePay can offer a technological support to quickly scale. (By the way, they call themselves TechFin…)
The question is - will they be competitive to Chinese players for mid and long term investment?
Algo for fund picking
AntFinancial’s Alipay offers some basic algorithm for fund selections. For example, suitable timing to buy when a fund is below its normal value. They also do fund ranking that combine Morningstar score and other factors. Being an fund houses, this might not be a good thing - if you are lower in the rank, that is. As a small investor, this is great. It is within AntFinancial’s interest to develop smarter algo so that their users like me can easily pick a good return generator, so I keep come back. Can’t imagine if I will come back after they offer me a couple of below-index performance funds.
With the big data that they have on me, they should know my spending behavior in Taobao / Tmall, usage of their credit offering (Hua Bei “花呗”) and even health data such as how many steps I walked a day etc. Combine these data with their “TechFin” algo, they’d better offer me something better.
Here is the Billion dollar question - can Blockrock and Vanguard win their customers in A&T’s (Alibaba and Tencent) beauty contest?
It is still early day of global players in the Chinese market. But competition is good, for both domestic and international players. They will, and should, learn from each other in the game of servicing Chinese retail consumers. I would be among the first few to try them!
Ps. Fund investment in Alipay and Wechat currently only available to Chinese citizen in China. Foreign passport holders can’t participate, yet.