The "rate war" is difficult to solve the worries of the downward yield of wealth management products

Source: China Securities Journal

In the face of the continuous decline in the rate of return on the underlying assets, bank wealth management companies have "attacked".

Recently, bank wealth management companies have once again intensively lowered the performance benchmark of their products, supplemented by preferential rates to retain and attract customers. Looking ahead, in the market environment of low interest rates and "asset shortage", the yield of bank wealth management products will continue to decline as a whole.

In the eyes of industry insiders, the "rate war" set off by wealth management products is not a long-term solution to retain customers, and bank wealth management companies can capture market conditions in a timely manner and improve product yields is the fundamental way to resolve the problem. For investors, if they want to achieve long-term stable returns, they need to extend the investment horizon in a timely manner.

Dealing with "asset shortage"

Recently, wealth management companies such as ABC Wealth Management, Minsheng Wealth Management, and Huaxia Wealth Management have lowered the performance benchmark of wealth management products, with a reduction of as little as 5 basis points and as much as more than 100 basis points.

On March 27, ABC Wealth Management announced that since 2023, the static yield of bonds has declined significantly and remained low. Based on the changes in the current market conditions, starting from the closed period starting from April 26, 2024 (inclusive), the product performance benchmark of the second phase of the "ABC Peace of Mind and Semi-annual Opening" RMB wealth management products will be adjusted from 3.65% (annualized) to 2.60%-2.90% (annualized).

The performance benchmark of some wealth management products has been lowered several times since the beginning of the year. For example, "Huaxia Wealth Management Fixed Income Pure Debt Daily Open Wealth Management Product No. 3", Huaxia Wealth Management announced that it intends to adjust the performance benchmark of the product's A share to 2.45%-2.95% from April 24. It is reported that this is the third time that the A share of the product has been lowered this year. The first two were adjusted to 2.70%-3.20% from February 2 and 2.64%-3.14% from March 1.

The downward revision of the performance benchmark is related to the "asset shortage" situation in recent years. "Objectively, market interest rates are down, and interest rate cuts are still expected, making it difficult to make a higher rate of return in the current market environment. Zhang Jing, an analyst at Huabao Securities, said that the current downward adjustment of the performance benchmark of wealth management products is more based on rational adjustment under objective market reasons.

From the perspective of deposit interest rates alone, according to Shao Chunyu, an analyst at China Merchants Securities, the listed interest rates of time deposits in 2023 will experience three rounds of reductions: first, state-owned banks will reduce deposit interest rates in June, and the interest rates on 2-year, 3-year, and 5-year time deposits will be reduced by 10 basis points respectively; second, 6 state-owned banks and a number of joint-stock banks will reduce deposit interest rates in September, and the interest rates on 1-year, 2-year, 3-year and 5-year time deposits will be reduced by 10, 20, 25 and 25 basis points respectively; The listed interest rates of 2-year, 3-year and 5-year time deposits were reduced by 10, 20, 25 and 25 basis points respectively. Urban commercial banks, rural commercial banks, and village and township banks have also lowered their deposit interest rates in early 2024, which is a follow-up response to the new round of deposit interest rate reductions led by large state-owned banks at the end of last year and the beginning of this year. At present, a number of banks have made it clear that they will continue to reduce the proportion of high-interest deposits, which means that deposit rates will be further lowered.

Set off a "rate war"

Compared with the change in the return on the underlying assets, bank wealth management companies are more worried about the loss of customers. As a result, while lowering the performance benchmark, wealth management companies such as Everbright Wealth Management, Minsheng Wealth Management, CMB Wealth Management and HSBC Wealth Management have launched measures to reduce management fees, retaining high-quality customers while responding to the call for fee reduction and profit concession.

For example, on April 19, Minsheng Wealth Management announced that it would carry out preferential rates for the "Minsheng Wealth Management Guizhu Fixed Income and Profit Increase Zhou Zhouying 7-day Holding Period No. 9 Wealth Management Product" being issued. From April 25 to May 25, the fixed management fee and sales fee will be reduced from 0.3% to 0.1%, and from May 26, the fixed management fee and sales fee will be adjusted to 0.15%, and the discount deadline will be announced separately. It is reported that since April, Minsheng Wealth Management has reduced fees for many of its wealth management products that are being issued.

Some companies have directly lowered the rate to 0, such as CMB Wealth Management Zhaorui Jinding (Gain) Closed No. 3 Fixed Income Wealth Management Plan, which will implement a fixed investment management fee of 0 rate from April 17.

"In fact, when we were still in the asset management department, we implemented preferential product rates, and the original intention of this was to give investors some 'psychological compensation' when the product returns were less than expected. A person from a joint-stock bank wealth management company told a reporter from the China Securities Journal. Zhang Jing believes that the development of phased preferential rates is conducive to the increase of sales scale of wealth management companies, and is a means of marketing and promotion to enhance market competitiveness.

Find a long-term solution

Cai Mengyuan, an analyst at Huabao Securities, said that the interest rate pivot is mainly determined by economic fundamentals, in the process of transformation and development, the mainland's economic growth slows down, and is currently facing problems such as "three-phase superposition", insufficient effective demand and weak social expectations, and there is downward pressure on prices, and it is still necessary to moderately loose monetary policy to support economic recovery, and it is expected that the mainland will face a low interest rate environment in the medium and long term.

In the low-interest rate market environment, industry insiders believe that the performance benchmark of bank wealth management products will continue to decline.

"The income pressure brought about by the scarcity of high-yield assets has become the main problem faced by financial institutions. The lower limit of the performance benchmark has shown a downward trend, but there are still more than 82% of the existing non-cash management wealth management products in the market with the performance benchmark exceeding 2.5%, and the performance pressure will continue in the short term. Huaxi Securities Liu Yu's team analyzed.

However, the "rate war" is not a long-term solution to the performance pressure and the "shortage of high-quality assets". Industry insiders believe that on the one hand, blindly reducing product rates may lead to the company's profit margins being continuously compressed, or lead to its neglect of the improvement of investment capabilities, thereby affecting long-term development; on the other hand, investors pay more attention to product performance and whether it is in line with their own capital liquidity arrangements, and only rely on "fee reduction" to boost sales or limited.

In the view of industry insiders, the focus of long-term holding and continuous investment that can attract investors lies in product performance and actual income level, which requires wealth management companies to reach a higher level in investment and research capacity building.

"In the future, as the fixed income market fluctuates, the robustness of products will be affected, so institutions need to put more effort into their investment strategies. Puyi Standard said that in the context of "asset shortage", institutions need to carry out more product research and development, and also need to control the volatility and drawdown of the portfolio through asset diversification. Institutions need to improve their ability to control and analyze the macro economy, and improve their risk management capabilities for multiple assets.

In a low-interest rate market environment, investors can achieve stable returns by extending the investment horizon. "We found that the yield of new long-term products was good when the market fluctuated at the end of 2022, but contrarian layout and long-term investment are easier said than done, and investors and asset managers need to change their thinking together. A person from a joint-stock bank wealth management company said.