At present, the pace of banks' wealth management in the layout of equity assets is gradually expanding, but the challenges faced are still significant.
The "Bank Wealth Management Industry Development Report (First Half of 2024)" (hereinafter referred to as the "Report") points out that as of the end of June 2024, the total investment assets of wealth management products amounted to 30.56 trillion yuan, with the balance of equity assets being 0.85 trillion yuan, accounting for 2.78% of the total investment assets.
Interviewees pointed out that under the trend of declining interest rates in the financial market, equity assets will become an important asset category to increase the returns of wealth management products.
Xue Hongyan, Deputy Dean of Xingtu Financial Research Institute, analyzed: On the asset side, given that the current A-share valuation is at a historical bottom, the cost performance of equity assets is high, and it is highly likely to achieve good returns by holding for a long time, which is a good layout window period; but on the capital side, investors' willingness to buy is low, which is a problem that needs to be solved.
The "dilemma" between the asset side and the capital side
The reporter searched the China Wealth Management Network and found that many wealth management companies have launched mixed wealth management products, participating in equity investment through equity products and "fixed income +" mixed products. In addition to issuing public wealth management products, some wealth management companies have also increased the allocation of equity assets through private channels.
"In the field of private wealth management products, we provide services for high-end private customers and help listed companies and their shareholders solve funding problems, with a single cooperation amount reaching 2 billion yuan," said a person from a joint-stock bank's wealth management company.
Xue Hongyan told the reporter that compared with public products that are open to the general public, private products have a higher threshold and are only open to high-net-worth customers. At the same time, the two also have differences in investment scope and information disclosure, and private products are more flexible. In terms of operation, public products pursue industry relative ranking and emphasize beating the index; private products focus on absolute returns, with not losing principal as an important goal, and each has its focus in investment strategy.
Pu Yanjie, Chief Equity Investment Officer of Xingyin Wealth Management, General Manager of Equity Investment Department and Fixed Income Investment Second Department/Retirement Finance Department, pointed out that the proportion of equity in bank wealth management products can range from 0 to 90%. Equity asset types are diverse, including stocks in the secondary market, equity funds, entrusted equity special accounts, equity investment, preferred stock investment, and financial derivatives related to equity, etc.
The research report of CITIC Construction Investment (601066.SH) pointed out that the number of equity products issued by bank wealth management companies in the entire market is relatively small, and the issuance of equity products is concentrated in leading institutions. In terms of investment scale, according to the "Report", as of the end of June 2024, the total investment assets of wealth management products amounted to 30.56 trillion yuan, with a focus on fixed income, with bond-type, non-standard债权class assets, and equity asset balances of 16.98 trillion yuan, 1.78 trillion yuan, and 0.85 trillion yuan, respectively, accounting for 55.56%, 5.82%, and 2.78% of the total investment assets.CITIC Securities believes that the scale of equity investment by bank wealth management companies is limited, and the proportion of equity products issued is relatively low. On one hand, wealth management companies have essentially inherited the channels and customers of their parent banks, and the customer preferences are more aligned with fixed-income products, with a lower acceptance of equity products that have greater net value fluctuations. On the other hand, wealth management companies are still in the nurturing stage regarding experience and capabilities in equity investment, making it difficult to issue equity products and not yet ready for large-scale development of equity investment, with deficiencies still existing in areas such as investment research capability building, team construction, and management system construction.
In the view of Shao Ke, head of the banking and integrated operations team at the Bank of China (601988.SH) Research Institute, there are difficulties for wealth management companies in issuing equity products on both the asset and funding ends. On the asset side, China's A-share market continues to fluctuate, with high-quality assets being relatively scarce, and equity investments face significant challenges, leading to poor performance of related wealth management products and a noticeable increase in short-term net value fluctuations.
"On the funding side, investor attention has decreased, and funding supply has declined, due to the poor performance of equity products, which has led to a significant decrease in investor trust; economic growth faces challenges, with future income expectations being poor, leading investors to become more conservative in their risk preferences, and more inclined to allocate funds to low-risk, stable return, and flexible-term asset management products; with the continuous downward trend of market interest rates in China, the bond market has performed well, and the return level and market valuation of fixed-income asset management products have risen significantly, increasing their attractiveness to investors; market competition has intensified, with wealth management, funds, and insurance asset management forming a tripartite stand in the public asset management market, with public funds having a comparative advantage in equity investment and flexible market mechanisms, and insurance asset management having a broader investment scope, posing a challenge to equity wealth management." Shao Ke analyzed.
For a long time, the overall risk preference of bank wealth management investors has been relatively low, which is the main constraint for bank wealth management to allocate equity assets. CITIC Securities pointed out that individual investors are the absolute mainstay of China's bank wealth management market. According to the principles of investor suitability management, the sales targets of equity wealth management mainly include aggressive or enterprising investors, which does not meet the characteristics of the majority of wealth management customers' preference for low drawdown products.
"After the transformation to net value, the original market image of bank wealth management products with principal safety and stable returns has been overturned, and the market has formed a strong negative feedback mechanism for wealth management breaking the net. The market value fluctuation of equity assets is more intense compared to credit bonds, with a larger drawdown, which does not meet the current conservative risk preference of wealth management customers." CITIC Securities pointed out.
Equity assets have high cost performance.
Interviewees pointed out that although bank wealth management companies are still in the initial stage of equity investment and are very cautious about position control, in the medium and long term, it is expected that wealth management products will guide more funds into the equity market with a series of policy support.
In late August, Wu Qing, Secretary of the Party Committee and Chairman of the China Securities Regulatory Commission, pointed out at a thematic symposium that in recent years, the team of institutional investors in the capital market has been growing and strengthening, with a significant increase in trading proportion, and has gradually become a benchmark force for rational investment, value investment, and long-term investment, playing an important role in promoting the healthy and stable development of the capital market. It is hoped that institutional investors will continue to be confident, maintain their resolve, adhere to long-termism and professionalism, continuously improve their professional investment research capabilities, better play a leading role, continue to strengthen the buying power, help investors obtain reasonable returns, enhance investor confidence and trust, and become more of a "stabilizer" for market operations and a "booster" for economic development.
CITIC Securities analyzed that at the policy level, wealth management companies can issue public wealth management products and directly invest in stocks without the need to invest in equity assets through other asset management products, saving the middle costs generated by indirect investment and reducing investment costs. At the same time, wealth management company products have no sales starting point requirements and have a lower threshold. At the bank level, increasing equity investment is an effective means to hedge against the downward trend of interest rates. Since 2018, the overall yield of wealth management products in the market has been declining, with increased short-term fluctuations. To promote a stable and declining comprehensive financing cost and to consolidate the foundation for economic recovery and upward movement, the central bank still has room for further interest rate cuts in the future. Due to the downward trend of interest rates, the attractiveness of fixed-income products to investors may gradually decrease, while the attention to equity wealth management products will gradually increase.
Jing Song, Chairman of Xingye Wealth Management, pointed out that bank wealth management companies have a rich form of serving the real economy and activating the capital market. They can use a variety of direct financing tools to meet the financing needs of real enterprises and guide residents' wealth to invest in the capital market, helping to achieve a dynamic balance between the financing and investment ends. First, it brings "financial vitality" to the real economy, and second, it contributes to the activation of the capital market. Bank wealth management is an important institutional investor directly participating in the capital market and can guide a portion of residents' wealth to equity assets through direct stock investment, public fund investment, and external investment, providing incremental funds.Xue Hongyan also mentioned that, considering the macro environment, as yields step down, bank wealth management products are likely to evolve in two extreme directions. One is to strive to reduce volatility, matching low volatility with low returns, and the other is to increase the allocation ratio of equity products, creating a comparative advantage with high volatility and high returns. In addition, given that the current A-share valuation is at a historical bottom, the cost-effectiveness of equity assets is relatively high, and long-term holding is likely to achieve good returns. Laying out equity-type products in advance is expected to support the medium and long-term performance development of wealth management companies.
The "Report" believes that the structure of wealth management products will be further optimized, with fixed-income products remaining the mainstay, accounting for more than 90%. At the same time, the proportion of mixed and equity products is also expected to gradually increase to meet the needs of investors with different risk preferences. In terms of allocation, the proportion of equity assets in wealth management companies may also slightly increase, especially for low-value blue-chip stocks and growth industries. In addition, the allocation of cross-border assets such as dim sum bonds, foreign currency bonds, and cross-border ETFs is also expected to increase.
Of course, wealth management companies increasing equity investments also poses a challenge to their investment research capabilities. CITIC Construction Investment believes that wealth management companies should seize the time window for equity product layout, increase the issuance of equity products, establish an independent equity investment research system, and improve the system and mechanism to consolidate the basis for medium and long-term development. At the same time, wealth management companies need to seize the opportunities of private wealth management business, strengthen cooperation with peers, further promote the development of private banks, enrich their own wealth management product system, and improve professional investment services. In the short term, when investment research capabilities cannot be compensated, actively seek external cooperation to indirectly increase the scale of stock investments.
"Bank wealth management investors generally have a lower risk preference, focusing on stability and small drawdowns. Controlling drawdowns mainly involves three aspects of work. First, position management, timely taking profits when valuations are high, and timely stopping losses when investment logic changes; second, as much as possible to diversify, with a lower concentration of heavy stocks than public funds; third, there is a risk management system to intervene, to avoid investment managers from not stopping losses, to avoid further declines." Pu Yanjie said.