Reappearance of "asset shortage"! How can bank wealth management break through?
2024-08-27
88 CommentsIn April of this year, the scale of financial management regained its upward momentum, but financial products are "easy to issue but hard to manage." Capital has come in, and issuance has warmed up, but there is a shortage of assets, and the yield is declining, leading to a situation of "asset scarcity" in investment.
In addition, since the transformation to a net value model, bond and deposit products have always been the main force in the allocation of financial management funds. Recently, with the reduction of deposit and bond interest rates, the issue of asset allocation in financial products has increasingly attracted the attention of financial institutions and the market.
Why does the "asset scarcity" in financial product investment occur?
Overall, what are the new changes in the allocation strategy of target assets in the current bank financial management compared to last year? Especially in the allocation of deposit and bond assets, what new characteristics and trends are emerging?
As the situation of "asset scarcity" becomes more severe, what new challenges and opportunities are financial management companies facing in terms of product and asset allocation? How to break the deadlock?
Advertisement
What specific impact will the current situation of "lack of assets" have on investors? In terms of allocation strategy, what key directions are worth paying attention to?
1. Why does the "asset scarcity" in financial product investment occur?
The essence of "asset scarcity" is not the absence of investable assets, but the absence of "high-quality" assets that balance low risk and high returns. After the transformation to a net value model, the risk preference of the bank financial management market is low, and it pursues stable returns, tending to allocate a large amount of money market and fixed income assets. The general decline in deposit interest rates and bond maturity yields has led to a continuous decline in the returns of financial products, which are not up to the expectations of investors. Issuing institutions are under market pressure and urgently need to find new high-quality assets to balance the risks and returns of the products.The emergence of an "asset drought" is due to several factors. On one hand, the high returns of the past have led investors to have excessively high expectations for the returns on wealth management products after the transition to net value. On the other hand, the performance comparison benchmarks set by issuing institutions have not been fully aligned with the current market conditions, resulting in investors' expectations for product returns being higher than the actual performance. When the products are actually operated, it is difficult to achieve returns that match the performance comparison benchmarks through the existing asset allocation.
The essence of the "asset drought" is the contradiction between the pursuit of low risk and the pursuit of high returns, a contradiction that is fully exposed during economic downturns.
2. Overall, what are the new changes in the allocation strategy of bank wealth management in terms of target assets compared to last year? Especially in the allocation of deposit-type assets and bond assets, what new characteristics and trends are emerging?
Data from Puyi Standards shows that according to the disclosed holdings of wealth management products, the proportion of "cash and bank deposits" in the holdings of newly issued wealth management products in the first quarter of 2024 was 84.80%, an increase of 2.66 percentage points from the fourth quarter of 2023; the proportion of "bonds" was 1.57%, a decrease of 1.3 percentage points from the previous quarter; the proportion of "non-standard debt assets" was 0.06%, a decrease of 1.25 percentage points from the previous quarter. Overall, in the first quarter of 2024, newly issued wealth management products showed a greater preference for "cash and bank deposits," with a decreased preference for "bonds" and "non-standard debt assets."
Since December 2023, the yields on long and short-term government bonds have continued to decline, with bond prices rising, increasing the cost of bond asset allocation for newly issued wealth management products. Although the major banks have adjusted deposit rates several times this year, putting pressure on the returns of "cash and bank deposits" in wealth management product holdings, due to the higher risk sensitivity of wealth management products compared to stocks and funds, and the significant fluctuations in the stock market in the first quarter of this year, institutions still prefer "cash and bank deposits" in the design of wealth management product asset allocation, while further reducing the allocation of "non-standard" assets, further strengthening the "stability" characteristics of wealth management products.
3. As the "asset drought" situation becomes more severe, what new challenges and opportunities do wealth management companies face in product and asset allocation? How can they break the deadlock?
In terms of challenges, in a low-interest-rate environment, the expected returns on wealth management products generally decline, which may affect the market appeal and customer retention rate of the products; the reduction of traditional high-yield assets forces wealth management companies to seek new investment channels and asset categories, increasing the demand for investment research capabilities, risk assessment capabilities, and innovation; as the "performance comparison benchmark" of wealth management products is generally lowered, there may be a gap between investors' return expectations and the actual market, and wealth management companies need to better manage investor expectations.
In terms of opportunities, it is possible to develop more diversified products, such as hybrid products, alternative investment products (such as private equity, real estate, infrastructure projects, etc.), and ESG (environmental, social, and governance) investment products, to meet the needs of investors with different risk preferences; in a low-interest-rate environment, liquidity management becomes more important, and wealth management companies can maintain product liquidity and stability through flexible asset allocation strategies, such as increasing short-term bonds and money market instruments.
Wealth management companies can seek to break the deadlock in several ways: first, by strengthening risk management, establishing a sound risk assessment system, and improving the ability to respond quickly to market dynamics to ensure the security of assets; second, by enhancing investor education, helping customers understand the current market environment, adjusting return expectations, and providing personalized consulting services to increase customer stickiness; third, by closely tracking regulatory policy dynamics and market trends, adjusting product strategies in a timely manner, and taking advantage of policy dividends, such as investments in government-supported areas such as green finance and technological innovation.
4. What specific impact will the current "asset shortage" situation have on investors? What are the key directions worth paying attention to in the allocation strategy?
Due to the scarcity of high-quality assets, investors may find it difficult to find investment projects that can provide satisfactory returns and meet risk preferences, leading to a decrease in the expected return rate of the overall investment portfolio; the shortage of assets may drive up the prices of certain assets, reducing their future appreciation space, and increasing the difficulty of asset liquidity, requiring investors to pay more attention to asset liquidity management; investors may need to adopt more complex and diverse strategies, such as increasing alternative investments, cross-border investments, and using derivatives, to explore potential investment opportunities.The focus of the configuration strategy is mainly in several areas. First, there is a focus on long-term bonds, especially in a monetary policy environment that is loose, where long-term bonds may provide a stable source of returns, and the issuance of special government bonds can help alleviate the asset scarcity in the bond market, offering investors more choices. Second, there is an increase in the allocation of defensive assets such as gold and high-quality bonds to counteract market uncertainties and protect the investment portfolio from the impact of sharp fluctuations. Third, following the insights of behavioral finance, adopting a long-term investment perspective is advised, avoiding frequent trading, reducing transaction costs, and focusing on long-term value investing.
Investing involves risk, and caution is necessary.