Ant Group’s Alipay, the most popular payment app in China with a billion users, issued a letter on the wealth management section of its app on Tuesday urging investors in the funds distributed on its platform to take a long-term view of the equities market rather than making hasty, panicked decisions.
Earlier this month Tencent pointed out to investors that risks are an inevitable part of the market, and that as such they should not overreact to price swings.
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Investors should not make a judgement call based on the market performance, but instead think about how they should react to the current bout of choppiness, which has come amid elevated inflation expectations as the yield on 10-year US treasuries surged to 1.6 per cent, Alipay advised.
“As global liquidity is gradually [being] withdrawn, market volatility could really increase. But investors should face this with a calm mind, as volatility is the characteristic of the equities market and also a main driver of returns,” it said.
The call for calm came from a think tank under Ant Fortune, the online platform through which Alipay users can access over 6,000 investment funds. Alipay is operated by Ant Group, an affiliate of Alibaba Group Holding which owns the South China Morning Post.
A knee-jerk response, and placing too much focus on the short-term performance of equities could result in an investor “buying high and selling low,” said the think tank.
“Investors should keep calm and not panic at short-term market volatility. When the market is red hot, it usually is the peak of the market. When the market is full of panic, it may be the bottom of the market,” it said.
In 2018, tensions between the US and China caused the mainland’s benchmark index to fall by 32 per cent. Early last year, the Covid-19 pandemic led Shenzhen’s ChiNext down by 20 per cent in just a month. But the market has now bounced back by just over 30 per cent.
The CSI300 Index, which tracks some of the biggest stocks in Shanghai and Shenzhen, added 0.7 per cent at the close of Wednesday, after earlier rising as much as 1.7 per cent. The gauge had plunged by almost 9 per cent in the preceding four days.
Mainland tech juggernauts such as Ant and Tencent have established their respective wealth management platforms piggybacking on their widely-used mobile payment apps.
These platforms often serve as an important distribution channel for money managers and fund houses in the China, enabling retail investors to get access to products ranging from mutual funds to money market funds and gold. Investors selling because of fear or any kind of knee-jerk reaction might spell trouble for managers coping with sudden fund outflows and redemption demands.
It is not the first time Ant Fortune’s think tank has offered its investing philosophy to its users.
Back in mid January, it published an article on a mainland finance news website urging investors to lower their return expectations from equity funds when the market was heading north.
In 2020, equity funds attained an average 44 per cent return. Back then, the CSI 300 index had risen 34 per cent over a 12 month period, reaching 5,596.35 on January 12.
“The overall valuation of the A share market has reached an elevated level. There are some 628 stocks whose price-to-earning multiples have exceeded 100 times,” said the think tank.
While over the medium, and longer term there is still value in allocating into equity funds, in the short term there is pressure overhanging their performance, it said back at the time.
“After two years of expectation-beating returns since 2019, there is a need for us to dial down our return expectation for equity funds for 2021”, the think tank said in January.
Tencent’s wealth management platform posted an article earlier this month on its apps suggesting investors prepare for taking risks when investing in the stock market.
“A majority of companies that could bring high returns to investors have previously seen a substantial correction in their share price,” the Tencent wealth management article said.
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