Recently, a notable decline in the returns of wealth management products has garnered considerable attention in the financial marketsThis trend, although anticipated by industry insiders, has proven to be more rapidly descending than many had expectedProjections indicated that by 2025, the performance benchmark for newly issued wealth management products would drop below 2%, yet the baseline benchmark for existing products has already achieved this concerning threshold much sooner.

On the evening of February 21, Guizhou Bank Wealth Management announced a modification in response to the prevailing market conditionsStarting from March 2025, the performance benchmarks for several products within their “Shuangyin Wealth” series would be adjustedThe new benchmarks for “Shuangyin Wealth – Weekly Treasure,” “Shuangyin Wealth – Monthly Open No. 2,” and “Shuangyin Wealth – Monthly Open” products would now sit at 1.8%, 1.9%, and 1.9% respectively – a historic plunge below the 2% mark.

Guizhou Bank isn't operating in isolation; many other wealth management firms, including Bank of China Wealth Management and Industrial and Commercial Bank of China Wealth Management, have also released new products with similar benchmark reductions below the 2% thresholdFor instance, ICBC's recently launched closed-end fixed income wealth management product set a new benchmark baseline as low as 1.70%, while Bank of China's newly offered open-end fixed income products displayed benchmarks at 1.90% and 1.80%.

The yields on wealth management products are influenced by an array of factors, transcending just the type of product offeredAs economic growth slows down, the demand for capital declines, resulting in lower pricing for fundsThis decline subsequently affects the yields on bonds and interbank deposit rates that typically underlie wealth management products, thus translating to reduced returnsAccommodative monetary policies also contribute to the scenario by enhancing liquidity in the market, leading to a further decrease in market interest rates and subsequently, the yields on these products.

Regulatory bodies have stepped in to control financial risks associated with these products, resulting in tighter regulations for financial institutions regarding their investments and operations

Advertisements

This brings a more cautious approach that invariably affects the yields on wealth management productsMoreover, to alleviate the pressures on redemption associated with market fluctuations, regulators have imposed restrictions on valuation methodologies such as net asset value smoothingConsequently, this affects mixed-asset products, making it challenging to maintain higher performance benchmarks in the face of declining underlying asset returns.

Furthermore, the predominance of fixed-income assets within wealth management products places a significant limitation on overall yield potentialData indicates that in January of this year, a staggering 98% of newly launched wealth management products were fixed-income products, amounting to a total of 3,588 offerings primarily investing in instruments like interbank certificates, bank deposits, and various bondsIn stark contrast, only 44 new mixed-asset products were launched, and the equity category had an incredibly low turnover of just four new products, all stemming from foreign banks’ open-ended offshore financial offerings.

In the current context of decreasing market interest rates, while yields on wealth management products have also declined, they continue to hold more appeal than conventional savingsRecent research reports indicate that by the end of January 2025, the total scale of wealth management products reached approximately 30.1 trillion yuan, reflecting a modest increase from the previous year.

However, for wealth management companies aiming to sustain the attractiveness of their offerings, it remains imperative to bolster their investment research capabilities and innovate their productsA focus on optimizing investment strategies is essential to provide investors with compelling returnsIn an environment where interest rates on deposits and bond yields have broadly diminished, companies should seek out fixed-income categories that show room for recovery, such as long-duration credit bonds and financial bonds.

Additionally, firms should actively explore configurations that include equity-like assets

Advertisements

Advertisements

Advertisements

Advertisements