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【Guide】Bond market adjustment, pure fixed income financial management income declines

China Fund News reporter Li Shuchao and Zhang Ling

Recently, the bond market has continued to fluctuate, and the net value of bank wealth management products has fluctuated. Among them, some fixed-income wealth management products with bond assets as the main allocation direction have fallen significantly.

Industry insiders said that the correction in the bond market has increased the pressure on banks to stabilize their financial returns. Against the backdrop of this year's "asset shortage", the scale of bank financial management has continued to grow. Institutions should actively adjust asset allocation to stabilize product returns, while investors need to establish a long-term investment philosophy and view short-term fluctuations rationally.

Fluctuation of returns on financial products

The probability of a recurrence of the "redemption wave" is not high

Recently, regulatory authorities have stepped in to warn of risks, bond market investment has "cooled down", and the net value of some bank wealth management products, especially fixed-income wealth management products, has fallen significantly.

Wind data shows that as of August 16, the net value of 536 pure fixed-income wealth management products has fallen in the past week, among which the net value of more than 90 products has fallen by 0.1% in the past week.

In this context, the market has also begun to worry about whether the redemption wave at the end of 2022 will reappear. In this regard, Lou Feipeng, a researcher at the Postal Savings Bank of China, bluntly stated that although the correction in the bond market has increased the pressure on banks to stabilize their wealth management returns, there will not be a large-scale redemption of funds in the fourth quarter of 2022.

"At present, the economy continues to recover. The People's Bank of China continues to pay attention to the risks of the bond market and asset management products and has repeatedly reminded market players that even if there are risks, they will most likely be released smoothly," said Lou Feipeng.

Li Wenyan, a researcher at Puyi Standard, said that due to multiple factors, interest rates of various maturities have generally risen recently, resulting in the overall weak performance of the bond market. Although the net value growth of bond wealth management products has narrowed month-on-month, there has been no significant increase in the net value ratio.

"In this round of bond market adjustment, medium- and long-term and highly leveraged products have been affected more significantly, while bank wealth management products mostly hold medium- and short-term bonds, and the overall fluctuation range of product net value is controllable. However, some products that achieve high returns through leverage are more sensitive to changes in interest rates, and we should be wary of potential risks of net value losses." said Li Wenyan.

Li Wenyan further stated that in view of the current economic situation, the possibility of a systematic reversal in the bond market is not high. The central bank's measures are mainly to correct long-term interest rates, not to change the overall trend of the bond market. It is expected that the bond market will gradually stabilize, interest rates will fluctuate within the range agreed by the central bank, and the possibility of the net value of wealth management products continuing to decline and breaking the net value trend is low.

The Ruizhi Xinhong Financial Research Institute also believes that considering the current market situation, the possibility of large-scale redemptions in wealth management is very small. First, under the background of "asset shortage", wealth management companies need to allocate a large amount of assets, which provides strong support for the bond market; second, in the past two years, under the promotion of regulatory agencies, wealth management companies have continued to advance in risk resistance and their response capabilities have been greatly enhanced compared to 2022; third, most professional market players believe that the bond market does not have the basis for a major adjustment.

The scale of financial management is still expected to continue to grow

Since the beginning of this year, although insurance deposits, interest-compensating deposits, trust smoothing mechanisms and closing price valuations that are used by bank wealth management products to stabilize net value fluctuations have been successively stopped by regulators, the scale of wealth management products has continued to rise, thanks to a new round of deposit rate cuts and "deposit moves" by major banks.

The "China Banking Wealth Management Market Half-Year Report (2024)" shows that as of the end of June this year, the scale of my country's bank wealth management market reached 28.52 trillion yuan, an increase of 6.43% from the beginning of the year. According to the calculation of the West China Securities Research Institute, as of July 31, the scale of wealth management increased by 1.43 trillion yuan from the end of June, and the latest scale is close to 30 trillion yuan.

Looking ahead to the future market, Lou Feipeng believes that the scale of wealth management will most likely remain stable or increase. At present, domestic demand is insufficient, and there are many new deposits from residents. The banks' reduction in deposit interest rates has also prompted residents to shift their deposits to wealth management.

Sun Shengqin, a researcher at PwC, also said that the new round of deposit rate cuts, especially the collective reduction of RMB deposit rates by large state-owned banks, is expected to further promote the transfer of deposit funds to the wealth management market. Although some measures to stabilize net value fluctuations have been stopped by regulators, overall, bank wealth management products are relatively low in risk and relatively stable in returns, and are still the choice of many investors.

"The rising size of the wealth management market is a result of investors' declining risk appetite. As long as the economic fundamentals remain stable and the stock market does not see a sustained rise, bank wealth management will remain the main choice for the majority of investors," said the Ruizhi Xinhong Financial Research Institute.

Actively adjust asset allocation

Establish a long-term investment philosophy

Against the backdrop of continued adjustments in the bond market, industry insiders believe that institutions should actively adjust asset allocation based on policy guidance and market dynamics, and investors should also remain rational and establish the concept of long-term investment.

Sun Shengqin believes that, first of all, we should pay close attention to policy orientation. The recent policies of the central bank and the Ministry of Finance have increased the disturbance to the bond market. In the short term, financial management should take into account both odds and winning rates to select asset types, and focus on long-term bonds with non-critical maturities. Secondly, we can increase the allocation of low-risk assets. Compared with low-grade credit bonds, interest-bearing bonds and high-grade credit bonds have lower credit risks and are more suitable for allocation when the bond market cools down. Finally, we can increase the proportion of assets with good liquidity, such as money funds, to cope with possible liquidity risks.

"In addition to selling long and buying short, we also need to control leverage and make diversified arrangements when investing to stabilize performance," Lou Feipeng pointed out.

For ordinary investors, Lou Feipeng suggested that in the process of investment and financial management, they need to have the correct concept, consider personal risk preferences, investment experience, etc., and also need to choose the appropriate investment model. Only long-term investment can pursue long-term returns.

Ruizhi Xinhong Financial Management Research Institute also advises investors to "watch more and act less". "Act less" means to have an understanding of the macro trends, and "watch more" means that after years of development in the financial management market, the market competition landscape has become relatively clear, and the investment capabilities and risk control capabilities of different financial management companies can be traced.

Sun Shengqin also suggested that, on the one hand, investors should fully understand the characteristics, investment strategies, risk levels and historical performance of the wealth management products they hold, which will help them better understand the volatility of the products in the current market environment and make reasonable judgments; on the other hand, investors should maintain a long-term perspective and avoid making impulsive decisions due to short-term fluctuations.