China allows WMPs to buy stocks directly

HONG KONG: Chinese authorities said wealth management products (WMPs) can invest directly in the stock market, as policy makers try to reduce the potential risks associated with WMPs buying third-party offerings.

Commercial banks can now open accounts to invest their WMP assets straight into equities, China Securities Depository and Clearing Corp. said in a statement on its website late Wednesday. Under previous rules, they could only get exposure to stocks via investment products from other financial institutions including brokerages and trust companies.

The rule change is China’s latest effort to cut financial risk, a campaign that has focused on reducing the size of the nation’s shadow-banking system. WMPs, asset management products offered by banks that promise yields higher than deposits, have been a driver in the growth of off-balance-sheet lending.

“The measure is aimed at reducing banks’ dependence on intermediaries to invest in the stock market, a process that can often lack transparency,” Yu Shao, chief economist at Orient Securities Co in Beijing, said by phone.

In July, regulators issued draft rules to regulate the issuance of WMPs. Banks should limit leverage and strengthen liquidity management, the China Banking and Insurance Regulatory Commission said. The rules are due to take effect at the end of 2020. — Bloomberg