In recent months, the investment landscape in China has been notably changing, influenced by a series of policies aimed at stimulating the market economyThese developments have sparked what many analysts term a 'money migration' phenomenon among deposits and wealth management products, raising speculation about the sustainability of this trendTo understand the dynamics at play, we reached out to financial experts and industry insiders for their insights.

One of the significant factors contributing to this shift is the reduction in deposit rates by state-owned banksMajor banks have recently executed cuts on their deposit rates, enhancing the appeal of wealth management (WM) products amid a more favorable investment climate in the capital marketWang Yifeng, the chief analyst for the financial sector at Everbright Securities, pointed out that while the comparison benefits of WM products over deposits may have initially driven their growth, the persistent high returns from the equity market threaten to overshadow these advantagesThis indicates that even during turbulent market conditions, the allure of capital gains is making equities a more attractive proposition for investors.

The first half of this year saw a cautious approach from investors, coupled with the tailwinds from a bullish bond market and low risk appetitesUnder these conditions, fixed-income WM products showed strong performance, resulting in substantial growth in that sectorAs of late June 2024, the total size of fixed-income products was recorded at 27.63 trillion yuan, accounting for a staggering 96.88% of all WM products available in the marketThis implies that while fixed-income vehicles enjoy substantial demand, the landscape is set for a possible evolution as investor sentiment shifts.

Wang indicated that as risk appetites are rekindled by the 'wealth effect' from stock markets, the attractiveness of fixed-income options may waneAdded to this, the recent fluctuations in the bond market have led to a slight decline in WM product yields, adjusting investor expectations

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Research from Puyi Standard corroborates this observation, revealing that the annualized return for various WM products fell to 2.49% as of October 22, down from the previous figures exceeding 3% seen in the first half of the yearSuch declines signal a pivotal point where investor interest may pivot away from traditional offerings.

Recently, several WM products have witnessed rate reductions, hinting at the relative sluggish growth in the retail sector for these investment vehiclesSome large corporate funds are channeling their financial resources from 'liquid-like' agreements and notice deposits into fixed deposits or non-banking financial productsThis indicates a trend where investment preferences are gravitating toward more secure, predictable returns, benefitting institutions that offer tailored WM solutions.

The anticipated increase in investment expectations mirrors the stabilizing forces introduced by recent policy measures aimed at rekindling the economyThe People's Bank of China released data indicating that by the end of Q3 2024, RMB deposits increased by 16.62 trillion yuan, with individual household deposits accounting for 11.85 trillion yuan of this figureThe WM sector showed a similar upward trend, achieving a size of 28.52 trillion yuanHowever, the resurgence in the stock market is leading to an observable trend: funds are being funneled more rapidly into equity investments rather than remaining idle in deposits or lower-yielding WM products.

Li Peijia, head of the financial team at the Bank of China Research Institute, highlighted the increase in the net value index for bank-securities transfers, which surged to 54.88 by October 8, marking an increase of 228.43% from the end of SeptemberThis figure, while seeing minor fluctuations, indicates a sustained positive trend and predicts that in light of the lowered deposit rates, a swifter pivot of deposits towards stock markets remains plausible.

Despite the apparent enthusiasm, there's an underlying concern regarding the seasonal nature of deposit inflations seen during certain quarters

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For instance, September's surge of 2.2 trillion yuan in new household deposits has been partially attributed to routine reassignments seen at the close of fiscal quartersA year-over-year comparison reveals a decrease in net deposits – signaling that individuals are increasingly seeking alternative investment channels beyond conventional bank savings.

As the equity market begins to stabilize, several analysts warn that the 'money migration' trend may experience a cooling-off phaseThe cyclical fluctuations in the stock market, coupled with broader economic conditions, will undoubtedly influence investor behaviorDong Danong from Puyi Standard suggested that stakeholders in the WM sector must adapt closely to changing market sentiments to formulate effective strategies that will engage investors effectively without overextending themselves during periods of volatility.

Another noteworthy trend is the increased interest in equity-linked WM productsAs banks expand their WM service offerings, there's an expectation that products featuring equity investments will see significant growthThe current figures suggest that until June 2024, the size of equity-linked WM products remains modest, lingering at merely 0.07 trillion yuan, highlighting a potential growth area as financial institutions aim to diversify their portfolios and meet changing consumer demands.

Market conditions have been ripe for banks to introduce an array of equity-driven WM products, with some financial subsidiaries already surpassing 100 billion yuan in fundraising efforts for their equity-linked product linesRecent data indicates a marked increase in the issuance of equity products, with a clear distinction between domestically backed offerings targeting private clients and those from foreign institutions structured around Qualified Domestic Institutional Investor (QDII) investments in overseas funds.

The gradual warming of market sentiment, coupled with a robust performance of the A-shares, has led to an increased recognition of the value offered by equity-linked WM products, capturing investor attention

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