Industrial Bank Wealth Management Department & Industrial Research Company
Co-authored
Residents' wealth allocation
With the improvement of living standards, the demand for wealth management is becoming increasingly strong. Inspired by the historical mission of promoting common prosperity, IB polished the golden business card of "Wealth Bank", accelerated the transformation of wealth business, and made the Group's full product lineage more complete, leading the industry in terms of comprehensive wealth management capabilities. Relying on abundant customer resources, we conduct quarterly surveys on the current situation and needs of the asset allocation of the Bank's three gold customers (gold, platinum and black gold), in order to deeply understand the wealth allocation intentions and trends of the three gold customers and provide wealth management services that are more in line with the needs of customers.
Residents' wealth allocation details: Survey results: In terms of asset demand, the demand for fixed deposits has decreased significantly, the allocation demand for wealth management products and gold has increased significantly, and the demand for real estate investment has continued to decline. In terms of earnings and expectations, customers with negative returns increased from the previous quarter, while customer expectations for the equity market improved. In terms of investment habits, customers pay more attention to historical returns and rankings of fund products, and when the returns are good, customers will be more willing to increase their holdings. Allocation facts: The year-on-year growth rate of residents' deposits has slowed down further. The momentum of residents' wealth management allocation has recovered significantly, and the proportion of fixed income wealth management has continued to increase. In terms of funds, the issuance of bond funds is still hot, and the issuance of equity funds is cold, but the trading volume of the stock market has rebounded slightly, and risk appetite has improved. The decline in real estate investment has expanded, and the delivery guarantee can be further improved. Review of major asset markets: Currency: In the first quarter, the return on currency assets continued to be stable, with the CSI Money Market Fund Index rising 0.51%. Fixed income: The yield of 10-year treasury bonds has decreased sharply, the major bond indices have risen well, the average performance of fixed-income wealth management has declined, and the proportion of fixed-income wealth management has increased. Equity: The CSI 300 index rose 3.1% in the first quarter, the equity fund index fell 3.24%, and public funds underperformed the broader market index. The average net value of equity wealth management products increased compared with the fourth quarter. Forex: USD/CNY broke through to the upside, paying close attention to the changes in the central price, affecting the upside. Gold: After the rapid rise of gold, London gold may be overvalued in a sideways manner, and Shanghai gold has a small retracement and more upside. Housing market: In terms of transaction area, the year-on-year decline in commercial residential and second-hand housing deepened compared with the fourth quarter, while in terms of prices, the prices of new residential and second-hand housing decreased compared with the fourth quarter. Quarterly outlook for wealth allocation: Currency: Government bond issuance is expected to accelerate in the second quarter, judging from the recent statements of the central bank, monetary policy will actively cooperate with hedging, and liquidity will remain basically stable. Fixed income: The MLF interest rate was not lowered in the first quarter, and the fund center limited the further downward space of the bond market interest rate, and the bond market may remain stable. Equity: The current market is in the stage of shock adjustment, and stock funds and wealth management with rights can be deployed on dips. Forex: A large number of countercyclical instruments have been introduced to alleviate exchange rate pressures, but fundamentals need to be improved. Gold: London gold and Shanghai gold are overvalued in the short term. However, the return of global central banks to net purchases and the low level of position differentiation are positive for medium- and long-term gold prices.
1. Details of residents' wealth allocation
1.1 Survey results on the asset allocation of IB's three gold customers
With the improvement of living standards, the demand for wealth management is becoming increasingly strong. Inspired by the historical mission of promoting common prosperity, IB polished the golden business card of "Wealth Bank", accelerated the transformation of wealth business, and made the Group's full product lineage more complete, leading the industry in terms of comprehensive wealth management capabilities. Relying on abundant customer resources, we conduct quarterly surveys on the current situation and needs of the asset allocation of the Bank's three gold customers (gold, platinum and black gold), in order to deeply understand the wealth allocation intentions and trends of the three gold customers and provide wealth management services that are more in line with the needs of customers.
We set up eight questions from the perspectives of asset demand, income and expectation, and investment habits, and collected and researched the views of our bank's three gold customers through the IB mobile banking APP, so as to obtain the views of the customer groups on wealth asset allocation. The survey for the first quarter of 2024 is as follows:
In terms of asset demand, the main investment direction of our customers' assets is low-risk time deposits, structured deposits and wealth management products, accounting for 86% of the asset investment ratio. Affected by the reduction in interest rates, the proportion of demand for time deposits decreased by 10.17%, while the proportion of demand for structured deposits and wealth management products increased by 1.15% and 7.87% respectively. Among the highly volatile assets, the demand for stocks and equity funds decreased by 1.59%, the demand for gold products increased significantly by 1.18%, the demand for overseas equity funds and foreign exchange products increased slightly, and the demand for real estate decreased to 0.33%. Overall, due to the impact of policies and markets, customer demand has changed greatly in this quarter.
In terms of insurance demand, 33.8% of customers allocated the most types of insurance were car insurance, accident insurance and other family property insurance, 30.42% of health insurance, and 11.82% of customers did not have any type of insurance.
In terms of revenue, the main revenue range of customers in the past year was between 0-5%, accounting for 55.47%, down 5.15% from the previous quarter. It is worth noting that customers with earnings of 5-10% and below -10% have changed significantly this quarter, both increasing by more than 2%, and investor returns have further diverged. At the same time, 15.13% of customers achieved negative returns on their investments in the past year, an increase of 3.55% from the previous quarter.
In terms of equity market expectations, with the rebound in the stock market in February, customer expectations for the stock market in the coming quarter have changed significantly. The proportion of customers who are bullish increased by 9.95% compared to the previous quarter, the proportion of customers with a flat view increased by 4.88% compared to the previous quarter, the proportion of customers who are bearish decreased by 11.43%, and the proportion of customers who do not pay attention to the stock market also decreased by 3.4%. Under the force of a series of policy measures, the sentiment of the stock market in the first quarter has been boosted to a certain extent.
In terms of holding period, most customers have a holding period of 3-12 months, accounting for 41.4%, a relatively large number of customers have a holding period of 1-3 years, accounting for 25.08%, and less than 5% of customers have a holding period of more than 3 years.
In the selection of fund products, the most important points for customers to invest are the historical returns of fund products and their ranking in the same category, followed by the type of fund and the main investment direction. The recommendation of the wealth manager is also an important reference for customers to choose fund products. Whether or not it is managed by a star fund manager is the least important factor for current clients when investing.
When the investment income is good, the survey shows that most customers will choose to increase their holdings, and the proportion of customers who will increase their holdings of products will reach 70%, and about 15% of customers who have take-profit operations. When the investment is facing a large loss, the proportion of customers who resolutely stop losses is 38.46%, and the proportion of customers who can hold firmly accounts for only 7.12%.
1.2 Statistics on the asset allocation of all residents in the quarter
In terms of financial assets, the year-on-year growth rate of household deposits slowed down further. The year-on-year growth rate of household deposits in February 2024 fell to 12.1%, down 1.7 percentage points from the growth rate in December 2023. However, the trend of fixed-term deposits has become stronger, with the proportion of fixed deposits exceeding 72% at the end of February, the highest since statistics began in 2004. There is a difference between the increase in the proportion of residents' fixed deposits and the results of the survey in the previous section, which may be due to the difference in the sample.
In terms of wealth management, the proportion of residents' fixed income wealth management increased. According to the statistics of Puyi Standard, at the end of the first quarter of 2024[1], there were a total of 23,569 existing wealth management products for individuals, with a total scale of 12.5 trillion yuan, a year-on-year increase of 17.4% from the end of the first quarter of 2023, and a year-on-year growth rate of 15.8 percentage points from the end of the fourth quarter. Compared with the end of the fourth quarter of last year, the proportion of cash management decreased slightly by 1.1 percentage points to 35.3%, the proportion of equity, commodities and derivatives and hybrid also declined, and the proportion of fixed income increased by 1.6 percentage points to 61.4%.
In terms of funds, bond funds are still hot. According to Wind data, since 2019, the issuance scale of equity funds in the first quarter of 2024 has only been slightly better than that in the second quarter of 2022. At the same time, the issuance of bond funds continues to be hot, in stark contrast. In terms of stock trading, the stock trading volume of the whole market in the first quarter of 2024 was 51.93 trillion, a slight expansion from the previous quarter, and after a series of policies were introduced to stabilize the market, residents' risk appetite for the stock market has picked up.
In terms of real estate, the "small spring" of the property market in 2023 led to a high base, and the decline in residents' real estate investment expanded at the beginning of the year. From January to February, the sales area and sales volume of commercial housing recorded -20.5% and -29.3% year-on-year respectively, down 7.8 and 12.4 percentage points respectively from the growth rate in December last year. From January to February, the proportion of existing home sales in residential sales area recorded 26.5%, a new high since 2016, indicating that the delivery guarantee can be further improved.
2. Review of the market of major types of assets
Currency: In the first quarter of 2024, the return on currency assets continued to be stable, with the CSI Money Market Fund Index rising 0.51% and the year-to-date increase of 0.51%. According to Puyi statistics, among all wealth management products, the average performance benchmark of cash management from January to February increased slightly by 3.0bp to 2.35% compared with the fourth quarter of 2023, and the scale of existence at the end of February decreased by 1.2 percentage points from the end of the previous quarter to 31.9%.
Fixed income: In the first quarter of 2024, the 10-year treasury bond yield fell by 26.52bp, the CSI 10-year treasury bond index rose by 2.59%, the China Bond Credit Bond Index rose by 1.27%, and the Wind Bond Fund Index rose by 0.99%. In terms of fund issuance, a total of 181.773 billion bond funds were issued in the first quarter of 2024, the largest bond-based issuance in the first quarter of each calendar year since 2019, and the current sales of bond funds continue to be hot. In terms of wealth management products, from the perspective of yield, the average performance of fixed income products from January to February decreased by 7.3bp from the previous quarter to 3.70%, and from the perspective of net breakage, the net value of fixed income wealth management products from January to February was 1094 and 1053 respectively, accounting for 2.0% of the number of existing products, down 1.1 percentage points from the average of 3.1% in the fourth quarter of last year.
Equity: In the first quarter of 2024, the CSI 300 Index rose by 3.1%, the Wind Common Equity Fund Index fell by 3.24%, the Partial Equity Mixed Fund Index fell by 3.14%, and the mutual fund significantly underperformed the CSI 300 Index. From the perspective of fund issuance, 33.263 billion equity funds and 21.324 billion hybrid funds were issued in the first quarter. In the past five years, the sum of the two has only been better than in the second quarter of 2022. In terms of wealth management products, the average performance benchmark of equity products from January to February decreased by 4.0bp from the previous quarter to 5.85%, and from the perspective of net breakage, the average net value of equity wealth management products from January to February was 50.1%, an increase of 5.9 percentage points from the average of 44.2% in the fourth quarter, and the net failure rate of mixed products increased from 31.5% to 35.4%.
Forex: In the first quarter of 2024, the market revised excess Fed rate cut expectations, and the US dollar interest rate rate rebounded after the exchange rate fluctuated. Despite the BOJ's historic exit from negative interest rates, the JPY remains the weakest G7 currency due to market expectations of a lack of sustainability in rate hikes. USD/CNY broke through the 120-day moving average at the end of the quarter and began to build a third peak as scheduled. The three major renminbi indices rose.
Gold: In the first quarter of 2024, gold prices rose rapidly after a slight shock adjustment. At the beginning of the year, driven by the resilience of U.S. economic data, U.S. Treasury yields and the U.S. dollar index rebounded hand in hand, which led to a slight adjustment in London gold, which lasted until mid-February, when the valuation and holdings of London gold were adjusted to a neutral slightly low level, and Shanghai gold remained high in a narrow range in January and February because of the rise in the U.S. dollar against the yuan after the start of the year. Since then, the high-frequency data in the United States has weakened, and Waller suggested buying short and selling long, and gold prices at home and abroad have joined hands to create new highs. The Federal Reserve's interest rate meeting in March reaffirmed the expectation of three interest rate cuts this year, which supported the high gold price. At present, the correlation between gold and the US dollar interest rate exchange rate has weakened, showing more commodity attributes, the traditional pricing model has failed in stages, and gold is continuously overvalued relative to the traditional pricing anchor.
Housing market: On January 26, the Ministry of Housing and Urban-Rural Development held a meeting on the deployment of the urban real estate financing coordination mechanism, fully giving cities the autonomy to regulate real estate according to local conditions. On February 6, Beijing lifted the "double purchase limit" policy in Tongzhou District, on February 7, Shenzhen also relaxed the purchase restriction standard, and on March 14, Hangzhou fully lifted the purchase restriction on second-hand housing. At the same time, the 5-year LPR was sharply reduced by 25bp in February, reducing the cost of interest payments for home buyers. The price of commercial housing is still in the process of adjustment. In terms of commercial housing transactions[2], the transaction area of commercial housing in the first quarter of 30 large and medium-sized cities was still at a low level in the same period of the past five years, and in terms of second-hand housing transactions, the transaction area of second-hand houses in 14 cities in the first quarter was better than the same period in 2022, but still lower than the level of 2019, recording -20.2% year-on-year under the base effect, lower than 27.4% in the fourth quarter of 2023. In terms of commodity residential prices, from January to February, the average price of commercial residential buildings recorded 9,653 yuan/square meter, lower than the average price of 10,580 yuan/square meter in December 2023, and the price index of newly built commercial residential buildings in 70 large and medium-sized cities decreased year-on-year from the fourth quarter of 2023, to -1.6%, and in terms of second-hand housing prices, as of mid-March, the listing price index of second-hand houses for sale recorded 92.8%, lower than 94.9% at the end of December 2023 (100% at the beginning of 2023).
3. Quarterly outlook for asset allocation
Currency: The rate of return of money market funds and cash management wealth management is closely related to the tightening of interbank liquidity. Entering the second quarter, government bond issuance is expected to accelerate, forming a withdrawal of interbank liquidity. However, in March, the central bank intensively released easing signals, and liquidity is expected to continue to be reasonably abundant. On March 6, Pan Gongsheng, governor of the central bank, said that the current average statutory reserve ratio on the mainland is 7%, and there is still room for subsequent RRR cuts. On March 21, Xuan Changneng, deputy governor of the central bank, said that the mainland's monetary policy has sufficient policy space and rich tool reserves, the statutory reserve ratio still has room to decline, the decline in deposit costs and the shift in monetary policy of major economies are conducive to broadening the autonomy of interest rate policy operations, and the establishment of scientific and technological innovation and technological transformation re-lending will help accelerate the development of high-end manufacturing and digital economy. Therefore, during the peak period of government bond issuance, monetary policy will cooperate with hedging to escort the issuance of government bonds, and the yield of currency products is expected to remain basically stable.
Fixed income: The central bank's monetary policy implementation report for the fourth quarter of 2023 pointed out that "continuing to promote the marketization of deposit interest rates will drive down the overall interest rate level", which means that the decline in deposit interest rates is a medium- and long-term direction, and there is still a possibility of a reduction within the year. The central fund rate pivot limits the further downside of bond market interest rates, and the bond market may enter a relatively quiet period of consolidation, while the acceleration of local bond issuance and the issuance of ultra-long-term special treasury bonds in the second quarter may bring new trading opportunities to the long end[3].
Equity: The current market is in a stage of shock adjustment. After a strong rally since February, the market has entered a correction consolidation. Equity funds and wealth management with rights can be arranged on dips.
Forex: USD/CNY broke through to the upside, paying close attention to the changes in the central price, affecting the upside. When the mid-price opens below 7.10, it is subject to a 2% volatility limit, and the USDCNY is capped at 7.242. If you want to break out further, you need to adjust the middle price upward. Considering the resilience of the U.S. economy and the relatively weak economic recovery in the euro area, the market expects the next interest rate cut by the Bank of Japan in the fourth quarter (the time is far away to make the market resume the carry trade logic of shorting the yen), and the Swiss National Bank cut interest rates more than expected to be bearish for the Swiss franc, the RMB still has room for market-oriented adjustment compared with other financing currencies, but the pace is subject to changes in the median price.
Gold: After the rapid rise of gold, London gold may be overvalued in a sideways manner, and Shanghai gold has a small retracement and more upside. In the medium and long term, the most essential influencing factor of gold prices is the potential labor productivity of the United States, and the trend of gold prices and potential labor productivity show a clear reversal year-on-year. According to the February 2024 forecast of the U.S. Congressional Budget Office, it predicts that potential labor productivity in the United States will not rise until 2026. The risk of a large correction in gold prices usually occurs during the expected inflation period of the technology cycle, when US labor productivity rises significantly. Pay close attention to the changes in the U.S. technology cycle, and it seems that there is little risk of a sharp correction in gold prices in 2024 and 2025. During the year, considering that the Fed has a high probability of cutting interest rates by 0-75bp this year, gold prices may see a phased high during the year. However, geopolitical events cannot be predicted, and this year is still a big year for geopolitical risks, and the outbreak of risk events may also push gold prices higher than expected.
Fourth, the customer suggestion
4.1 Investment Behavior Recommendations
First, in the context of the net worth of wealth management products and the intensification of equity market volatility, it is difficult to avoid the risk of market fluctuations by only allocating a single product or asset, and a balanced and reasonable asset allocation is essential. Second, while establishing the concept of asset allocation, we should reasonably assess our own risk tolerance, rationally manage the expected return on investment, and choose appropriate varieties of products. Third, equity fund products can be selected after a comprehensive review of the product's past performance, risk control, and overall style, and historical performance cannot represent future performance; Fourth, the medium and long-term allocation value of gold is still prominent, but the recent rise is large, and we should be wary of the risk of its short-term correction. Fifth, based on the present, focus on the future, and establish the concept of long-term investment.
4.2 Suggested configuration strategy for the second quarter of 2024
The allocation ratio of major types of assets is only recommended for investable financial assets, and the proportion is for reference only and is adjusted according to the position and maturity of the product.
Note: For C1-C2 customers, very low volatility products are the mainstay.
Annotation:
[1] As of March 25, 2024.
[2] Data as of March 25.
3. Source: Guo Zairan, Gu Huaiyu, Zhang Juntao, Fu Xiaoyun, Guo Jiayi, "Funding Constraints on the Downside of China's Bond Interest Rates - FICC Strategy Report 2024 No. 9", March 2024.
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