After the fall: boost for China's P2P lending platforms as jittery market investors eye havens
Millions of Chinese investors have been left to rue their losses and are keen to find a more stable alternative than stocks in future
Even as China’s stock market falters, it is still providing great opportunities for online financial services companies, including peer-to-peer (P2P) lending platforms such as Lu.com.
The website, a subsidiary of Ping An Insurance, has been attracting more than one million new investors every month since the mid-July market slump, and is keen to claim a bigger share of wealth management services on the mainland.
I am in the process of cashing in my stocks and will put my funds in P2P because it generates stable returns
Jittery stock market investors are increasingly keen to find alternative places where they can put their money.
“The stock prices are falling, but we feel that opportunities will arise from bond-focused mutual funds,” said Gregory Gibb, chairman of the Shanghai Lujiazui International Financial Asset Exchange.
“It’s important to create a platform that is well-connected to all investment funds.
Lu.com, which is one of the mainland’s largest online financial service providers, planned to evolve into a financial conglomerate that offered one-stop wealth management services, Gibb said.
It will offer comprehensive online wealth management services rather than focusing simply of acting as a matchmaker between borrowers and lenders.
The stock prices are falling, but we feel that opportunities will arise from bond-focused mutual funds
Millions of Chinese equity investors have been left to rue their losses following the boom-to-bust cycle of the mainland stock market since mid-June, with many of them looking for alternatives to stocks for future investments.
“I think it is time to take a break from the stock market,” said Zhou Shiyu, who has invested more than 2 million yuan (HK$2.4 million) in A shares.
“I am in the process of cashing in my stocks and will put my funds in P2P because it generates stable returns.”
The People’s Bank of China’s Shanghai headquarters said in a report that local residents were now shying away from the stock market, with current deposits at Shanghai-based commercial banks up by 8.9 billion yuan in August compared with July.
READ MORE: China's P2P lenders offer relief to small entrepreneurs
On the bond market, companies listed on the Shanghai Stock Exchange raised 276.2 billion yuan through debt offerings in the first eight months of this year – more than three times the amount during the same period a year ago.
People have totally lost their confidence in stocks
Corporate bonds issued recently could be at least 30 times oversubscribed, according to bond traders.
“It is a clear sign that a capital outflow from stocks will become an irreversible trend,” Dong Jun, a Shanghai-based hedge fund manager, said. “People have totally lost their confidence in stocks.”
A buying frenzy on the A-share market drove the key indicator up more than 100 per cent between last October and mid-June before it retreated, despite Beijing’s heavy-handed intervention. It is now more than 40 per cent off its peak.
The central bank has cut interest rates five times since last November with the benchmark one-year deposit rate standing at 1.75 per cent – which is far from being enough to attract individual depositors.
We need to position ourselves to where the winds blow. If we catch this wind of the internet, the Chinese economy will fly
Online financial service firms have emerged as the top beneficiaries of the stock market gyration and low deposit rates.
Gibb said a broader, open online platform within China’s burgeoning internet finance sector would be able to cater to nervous equity investors.
The surge in new investors flocking to Lu.com each month has prompted the P2P player to expand its range of business services.
Lu.com expects to link up with 90 mutual fund houses by the end of this year – nearly three times its current total of 35 – in a move to help clients buy a wider range of investment products.
“Giving Chinese investors access to mature foreign equity investment products, via the internet, is logical and imminent,” Gibb said. “We hope to launch the products in a month’s time.”
Dianrong.com, another mainland P2P operator, which was established by US Lending Club co-founder Soul Htite, forecasts that it would see a six-fold increase in the size of its business compared with now and next year.
READ MORE: 'Like taking a knife to one's flesh': Li Keqiang vows to push on with 'painful reforms'
Premier Li Keqiang strongly supports the plan of online financial firms growing quickly because it will help to break up the monopoly enjoyed by state-owned lenders.
In March he said that Beijing would look to the "new economy" - the internet, technology and services sectors - to spur growth.
“We need to position ourselves to where the winds blow, Li said. “If we catch this wind of the internet, the Chinese economy will fly."
These mainland's online financial companies will provide cash-hungry small businesses and individuals with access to much-needed loans.
Lu.com – which changed its name from Lufax.com earlier this month – conducted business with individual clients worth 200 billion yuan in June.
The company, which was established in 2011, then saw its business volume exceed 600 billion yuan during the two-month period from the start of July up to the end of August.
Ye Song, a local resident, said he was interesting in investments that were not going to be risky
“It’s certainly worth trying to invest in a P2P, although initially I will start to invest only a small portion of my assets on the Lu.com platform,” said Ye Song, a local resident.
“The return rate of the investment doesn’t have to be extremely high, but the safety of the investments will matter and must be guaranteed.”
However, Gibb said investors need not worry because Lu.com had made the safety and reliability of its investments a priority.
It also imposed stringent standards on all of the investment products available on its platform, he added.
