Shift in investment strategy seen

SHANGHAI: Retired Shanghai truck driver Shen Xipei shunned risky stocks and low-yielding deposits and instead put his life savings into a wealth management product (WMP) sold – and guaranteed – by a bank.

Soon, however, investors like Shen may start switching into other assets after Beijing published draft guidelines on Nov 17 to ban financial institutions from guaranteeing investors against losses, tightening supervision of what the central bank says is a US$9 trillion asset management industry.

A move away from bank WMPs by armies of Chinese investors – which some analysts expect – would likely trigger a seismic shift in China’s asset management industry, with the new rules apparently favouring transparent mutual fund products.

“I bought the WMP because I trust banks. They don’t run away with your money,” said 63-year-old Shen. The product he bought from Industrial Bank promised an annualised return of around 4.15% – far exceeding the 1.5% yield on one-year bank deposits, he said.

“But if they no longer guarantee my principal, I’ll definitely put my money elsewhere.” It remains to be seen where, exactly, the flood of cash will slosh, but some analysts expect relatively safe bond funds or more liquid money market funds to benefit.

With limited options for onshore investments, people may also park their money in real estate markets. “Demand for off-balancesheet WMPs may partially switch to similar products such as money market funds or bond funds,” said Sophie Jiang, banking analyst at Nomura.