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在线翻译:
szdaily -> Markets
New rules may bring sea change for small investors
    2017-December-4  08:53    Shenzhen Daily

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 the government published draft guidelines 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 droves of investors — which some analysts expect — would likely trigger a seismic shift in China’s asset management industry, with the new rules apparently favoring 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 annualized return of around 4.15 percent — far exceeding the 1.5 percent 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 already inflated real estate markets.

“When implicit guarantee fades out ... demand for off-balance-sheet WMPs may partially switch to similar products such as money market funds or bond funds,” said Sophie Jiang, banking analyst at Nomura. “We see stronger competition for deposits as loopholes around WMPs get fixed.”

The new rules underscore the government’s determination to reduce risks and further standardize the country’s financial markets. More investment securities, meanwhile, will be allowed to fail, leading to a better pricing of risk and professionalization in the asset management industry.

By holding investors responsible for their own losses, the authorities are also trying to change a deeply-ingrained culture that made it common for investors to dump money into risky, high-yielding assets and expect State protection. Prices have been warped along the way.

“Breaking the implicit principal guarantee will force a risk re-pricing in the market,” said Hong Hao, head of research at BOCOM International.

“Investors should get used to a new high-return, high-risk regime, instead of the old, risk-free but high-return regime. It won’t be easy.”

Financial markets have started to react to the flurry of financial reforms announced in recent weeks, with domestic bond yields rising steadily since the end of September, while stocks saw their biggest one-day drop in nearly 18 months Nov. 23.

There is no official data on the number of people who have invested in WMPs, but official statistics show that at the end of June, 555 Chinese banks had 85,800 outstanding WMPs. In the first half of 2017, a cumulative 119,200 WMPs had been issued.

WMPs issued by banks and other financial institutions, such as trust firms, have been a central component of the shadow banking sector, which the government has struggled to contain.

As part of efforts to break implicit principal guarantees, the new guidelines require that all asset management products must be based on net-asset-value (NAV) to reflect risks on a timely basis — rules that analysts say favor mutual funds.

“For institutions such as trust firms, it would take time to adjust their products in a bid to meet the tall order,” said Ivan Shi, head of research at fund consultancy Z-Ben Advisors, predicting greater investment flows into fixed income or money market mutual funds. (SD-Agencies)

 

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Shenzhen Daily E-mail:szdaily@szszd.com.cn