Fixed-income products prefered by China's small investors

Volatility in China's stock market is feeding an appetite for fixed income investment products among China's small investors, driving them to Tencent's marketplace.

Licaitong, an online financial service established by Tencent in early 2014, connects more than 600 million users of its instant messaging app WeChat to a range of wealth management products offered by domestic asset management firms, with at least 10 million users in the fourth quarter 2015.

Over 30 million users have now put their money into investments ranging from money market funds, bonds or mutual funds marketed through Licaitong, the main competitor to Alibaba's Yu'ebao, a money market fund that offers higher returns than bank deposits.

Licaitong users tripled in 2015 and with most growth during the second half of the year, most likely attracted by low-risk fixed income investments Tencent has invited from domestic asset managers.

Domestic asset management firms are keen to enlarge their online presence through top-notch firms such as Tencent and Alibaba. Internet firms can leverage their user base to reach out more customers than asset management firms have traditionally been able to.

Tencent says future Licaitong customers will come from China's low tier cities where offline wealth management options for middle class investors can be hard to find. Low-risk fixed income funds, such as those that invest in the money market and high-grade bonds, will remain more attractive to average investors than mutual funds investing mostly in China's volatile stock market.