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Returns on China’s WM products to shrink

A lack of quality investment targets will pose a challenge for Chinese wealth managers this year, a new report by Cerulli Associates said.

Wealth management products in China, issued mainly by state-owned or nation-wide commercial banks continue to dominate the domestic asset management industry, hitting a record RMB23.5trn last year, up from RMB15trn a year ago.

For different types of bank wealth management products, such as closed- or open-ended funds, focus on expected returns or comparing to benchmark indices – the weighted average of total return reached between 3.7% and 5% last year, the Cerulli said in its report “Asset Management in China 2016”.

The return once reached as high as 5.1% in 2014, the report showed.

The yield is expected to drop further this year, said Miao Hui, senior analyst with Cerulli who leads the China research initiative, due to “many maturing quality non-standard products that generated excess returns for banks and a tightening of regulations on investment for these products”.

Meanwhile, Cerulli also noted that nationwide commercial banks, such as China CITIC Bank and China Everbright Bank, have surpassed the five state-owned banks for the first time to raise the most funds.

Cerulli expected that banks’ outsourcing business will grow, which is set to benefit the fund management companies, especially via mandates from small and mid-size banks in the mainland, including rural financial institutions.

“With their familiarity with capital markets and flexibility in using leverage, fund management companies and securities houses will possibly gain more mandates from banks this year,” Hui said.

Following the wealth management products, assets under management by trust, insurance and mutual funds reached RMB16.3trn, RMB12.4trn and RMB8.4trn respectively, the report noted.

Part of the Mark Allen Group.