– China’s A-share market rally is fueling increased activity in wealth management products, particularly fixed income plus offerings. – Deposit relocation from traditional savings to equity-linked products is becoming a significant trend, with banks adjusting strategies to capture opportunities. – Risk management and diversified strategies are crucial as investors seek higher returns in a volatile market environment. – The growth in REITs and other alternative assets presents new avenues for fixed income plus products.
Market Dynamics and the Rise of Deposit Relocation
The recent surge in China’s equity markets has captured global attention, with the Shanghai Composite Index breaking through 3900 points and the STAR 50 index posting single-day gains exceeding 5%. This robust performance, coupled with gold prices holding firm above $4000 per ounce, is reshaping investor behavior and accelerating a notable deposit relocation trend. As capital flows from traditional bank deposits into more dynamic wealth management products, financial institutions are pivoting to meet this demand. The shift underscores a broader transformation in China’s financial landscape, where fixed income plus products are emerging as a preferred vehicle for yield enhancement. This deposit relocation phenomenon is not just a temporary reaction but a structural change driven by evolving market conditions and investor appetite for higher returns.
Equity Market Recovery Driving Fixed Income Plus Product Activity
Market Data and Growth Trends
The correlation between equity market performance and fixed income plus products has never been more pronounced. Data from Puyi Standards reveals that mixed-type wealth management products saw their scale increase from 6470.76 billion yuan at the end of June to 6548.11 billion yuan by September, a growth of 77 billion yuan. This uptick aligns with the broader market rally, where the Shanghai Composite Index reached 3933.97 points, a 1.32% gain that marks a decade-high. Similarly, the Shenzhen Component Index rose by 1.47%, and the ChiNext Index added 0.73%. Trading volume across the Shanghai, Shenzhen, and Beijing exchanges hit 2671.8 billion yuan, reflecting heightened investor participation. The deposit relocation into these products is evident, as banks report increased inflows from clients redirecting maturing fixed deposits into equity-linked offerings.
Analyst Insights and Future Projections
Industry experts highlight the strategic importance of this deposit relocation. Dai Zhifeng (戴志锋), a banking analyst at Zhongtai Securities, notes that while direct equity investments by wealth management products are at a five-year low, indirect exposure through funds has reached a five-year high. He projects that as mixed and fixed income plus products gain traction, wealth management funds could allocate over 100 billion yuan to equities in the latter half of the year and through 2026. This optimistic outlook is shared by many institutions, which see sustained momentum in deposit relocation as a key driver. The China Wealth Management Network data supports this, showing a significant rise in equity-linked product issuance, with 12 pure equity products launched this year compared to just two in the previous year, and mixed products reaching 202, up from 169.
Investment Strategies in Bank Wealth Management
Direct and Indirect Equity Exposure
Banks are employing diverse tactics to capitalize on the deposit relocation trend. Ningbo Bank Wealth Management emphasized that sectors like technology, manufacturing, gold, and dividends have experienced periodic strong performances, enabling fixed income plus products to achieve equity-enhanced returns. Hangzhou Bank Wealth Management added that higher-yielding products often fall into the balanced or bond-heavy categories, and despite short-term volatility, a bullish long-term view on equities prevails. Liu Chi (刘驰), Deputy General Manager of the Equity Investment Department at Puyin Wealth Management, detailed their product lineup, which includes low-to-medium equity content series like Puxiang Zengyi and higher-equity products that offer better return elasticity. He pointed out that tech assets and Hong Kong-listed stocks have outperformed, while dividend-focused assets have been relatively subdued.
Performance Across Sectors
The performance disparities among asset classes are shaping product strategies. CITIC Bank Wealth Management’s Multi-Strategy and Equity Investment Department analysis indicates that equity assets have generally appreciated this year, with Hong Kong stocks and gold each surging over 30%, and A-shares, U.S. stocks, convertible bonds, and REITs posting double-digit gains. In contrast, the bond market has been volatile, making the equity component within fixed income plus products a critical differentiator. Products with moderate volatility and elasticity have significantly outperformed low-volatility alternatives, and this gap is expected to widen further with policy support for long-term capital inflows and multi-strategy configurations. This nuanced approach is essential for managing the deposit relocation effectively, ensuring that investor funds are deployed optimally across varying risk-return profiles.
Risk Management in Volatile Markets
Absolute Return Approaches
As deposit relocation accelerates, risk management becomes paramount. Ye Yuzhang (叶予璋), General Manager of the Innovation Business Department at Xingyin Wealth Management, outlines two primary strategies for achieving absolute returns: fixed income plus options to hedge against black swan and gray rhino events, and multi-asset strategies that cap equity exposure at 10% for steadier gains. He remains optimistic about the prospects for stocks, bonds, and gold in a low-inflation, liquidity-abundant environment. This cautious yet opportunistic stance is vital for sustaining the deposit relocation momentum, as investors seek reassurance that their relocated funds are protected from extreme market swings. The integration of derivatives and structured products allows for participation in equity upside while limiting downside, a key selling point in current conditions.
The Role of Diversification
Diversification is at the heart of modern fixed income plus strategies. Ningbo Bank Wealth Management observes that while stock valuations are around historical averages, declining bond yields have improved equity attractiveness. Long-term, China’s transition to high-quality development is boosting corporate returns, creating structural opportunities. Hangzhou Bank Wealth Management plans to enhance strategies through global allocation, gold, and commodities. Liu Chi (刘驰) stresses the importance of timing, especially for products with 5-10% equity allocations. High-equity thematic products can deliver strong returns but face higher volatility and potential redemption pressures in market downturns. The interplay between stocks and bonds requires careful rebalancing to maintain stability, ensuring that deposit relocation does not lead to unintended risks.
The Deposit Relocation Phenomenon
Investor Behavior and Sales Trends
The deposit relocation trend is vividly illustrated by sales data and investor anecdotes. Multiple joint-stock bank wealth management sales personnel report that clients are increasingly shifting funds from maturing time deposits into equity-linked or mixed products, with fixed income plus offerings becoming a go-to option. This behavior is fueled by the search for yield in a low-interest-rate environment and the allure of equity market gains. China Wealth Management Network statistics show that wealth management companies conducted over 2000 research visits to A-share listed firms in the first three quarters, indicating a deep engagement with equity markets. The deposit relocation is not just a trickle but a substantial flow, with projections suggesting it could channel hundreds of billions into equities, reshaping liquidity patterns in the banking sector.
Impact on Banking Sector
This deposit relocation has profound implications for banks. As traditional deposits migrate to wealth management products, banks must adapt their business models to retain clients and generate fee-based income. The growth in fixed income plus products helps banks diversify revenue streams away from interest margins, which are under pressure from monetary easing. However, it also necessitates enhanced risk management capabilities to handle the complexity of these products. The deposit relocation is a double-edged sword: while it boosts wealth management revenues, it could strain deposit bases if not managed carefully. Banks are responding by innovating product offerings and strengthening investor education to ensure a smooth transition and maintain financial stability.
Future Directions and Opportunities
Emerging Assets like REITs
Beyond traditional equities, new asset classes are gaining prominence in the deposit relocation narrative. CITIC Bank Wealth Management highlights public REITs as a promising addition to fixed income plus products. With China’s public REITs market capitalization surpassing 200 billion yuan and expected to reach 400-500 billion yuan through regular issuance, these assets offer scarcity and quality in an asset-scarce environment. Factors such as declining risk-free rates, institutional demand, and anti-cyclical advantages make REITs an attractive ‘plus’ component. This expansion into alternatives is crucial for sustaining the deposit relocation trend, as it provides fresh avenues for diversification and yield enhancement without over-relying on volatile equity markets.
Policy and Market Outlook
Looking ahead, policy support and market evolution will shape the trajectory of deposit relocation. Government initiatives to encourage long-term capital market participation, combined with economic recovery efforts, are likely to sustain interest in fixed income plus products. Analysts anticipate that multi-strategy approaches will become more sophisticated, incorporating AI and big data for better asset selection. The deposit relocation is expected to continue, driven by demographic shifts and increasing financial literacy. For investors, staying informed about regulatory changes and market trends is essential. As China’s financial markets mature, the integration of global assets and digital tools will further refine how deposit relocation is executed, offering unprecedented opportunities for growth and stability. The ongoing deposit relocation trend is reshaping China’s financial ecosystem, with fixed income plus products serving as a key conduit. Investors and institutions must stay agile, leveraging diversified strategies and robust risk management to navigate this evolving landscape. As markets continue to integrate new assets like REITs, the potential for growth remains substantial. For savvy market participants, understanding these dynamics is crucial for capitalizing on emerging opportunities. Monitor bank product launches and regulatory updates closely to make informed decisions in this rapidly changing environment.