[Financial Business World]Financial retail investors fall into the trap of “raising and killing” without discussion | Bank financial products | Redemption tide

[The Epoch Times, November 23, 2022]Last week, China’s bond market suddenly fluctuated. The yield of ten-year government bonds suddenly rose by 15 basis points, and the one-year government bond also rose by 45 basis points. At the same time, some What caught retail investors by surprise was that bank wealth management products, which were supposed to be safe and capital-guaranteed, also began to lose money. Some investors even lost three months of income in just three days. So, what caused this sudden change in the wealth management market? Why do wealth management products that were originally capital-guaranteed lose money? This seems to be related to the sudden change of the rules of the game by the CCP. What is the reason behind this?

Let’s talk about these topics today.

Large-scale withdrawal of wealth management products triggers redemption wave

Let’s first look at the situation in the bond market last week.

On November 17, data provided by Wind, a mainland data service provider, showed that as of November 16, among the approximately 34,000 wealth management products, nearly 13,000 had fallen below their net worth, accounting for nearly 40%.

Hong Hao, chief economist of hedge fund GROW Hong Kong, also tweeted on the 17th, “A certain four major banks’ wealth management products have withdrawn by more than 20%, and then there is a large amount of redemption. And wealth management products usually Considered a capital-protected investment.”

He also said, “Since October, nearly a third of the 30,000 wealth management products have fallen below their net value due to the surge in short-term interest rates.” Hong Hao believes that “the situation may get worse before it gets better.” .”

Faced with the sharp withdrawal of wealth management products, we have seen that investors began to redeem a large number of bank wealth management products in order to avoid greater losses. As the scope of redemption expanded, it triggered more huge redemptions of bond funds and wealth management products, which evolved into a vicious circle from redemption to net worth decline, and then to redemption.

In the face of the sudden large-scale redemption wave of wealth management products, presumably the pressure on fund managers and banks is not small.

The wealth management subsidiaries of many banks, including Bank of China, China Merchants Bank, Industrial Bank, and China Zheshang Bank, have publicly spoken out in an attempt to appease investors, calling on investors to remain calm and saying that the impact on the bond market is controllable.

We have seen that these banks not only verbally appeased, some also suspended the redemption service, and some banks temporarily modified the rules of the game.

For example, on the 16th, Bank of Nanjing issued an announcement saying that in order to cooperate with the upgrade of the wealth management system, from 3:30 pm on November 18 to 5:00 pm on the 20th, all subscriptions, redemptions and other services for two types of cash wealth management will be suspended.

On the same day, some netizens also provided news that China Merchants Bank’s wealth management product, a R2 low-risk fixed-income wealth management product, was unable to redeem it. The information sent by China Merchants Bank Wealth Management said: “Due to too many redeeming customers, the huge redemption limit has been touched.” However, the product resumed the redemption function on the same day.

This phenomenon of restricting and suspending redemption immediately caused panic among investors, and then exacerbated the spread of the phenomenon of redemption.

On November 17, Bloomberg quoted a person familiar with the matter as saying that at least five banks had reported the liquidity situation and potential risks to the Central Bank of China and the China Banking and Insurance Regulatory Commission at the request of the regulatory authorities, as well as the redemption measures. Responses.

Also on November 17, the Central Bank of China launched a 132 billion yuan, 7-day reverse repurchase in the open market to hedge the 9 billion yuan due on that day, with a net investment of 123 billion yuan.

With the rescue of the central bank of the People’s Republic of China, the restrictions and suspension of redemption have also been eased, but the problem of tight liquidity does not seem to have been really resolved.

On the 20th, another message appeared on the Internet: “The bond fund that was originally credited the next day has now been changed to T+7”, that is to say, even if you are allowed to redeem, the money will not be given to you immediately , you have to wait until the seventh day after the date of redemption to arrive at the account. In the past, the account was received the next day, that is, T+1, but now it has become T+7.

The bank’s practice of changing the rules of the game at will also made some netizens angrily say that it is simply “playing hooligans”.

Just now we briefly reviewed the situation of the wave of redemption of wealth management products last week.

Next, we will discuss two issues with you. The first question is that banks have been selling wealth management products in mainland China for nearly 20 years, and they have always been regarded as capital-guaranteed investments. Then, why such a large-scale loss occurred this time?

The second problem is that some netizens said that they lost money and were confused. As the saying goes, one learns one’s wisdom through a pit, so from this market turmoil, what experience is worth learning from?

Let’s look at the first question first.

Why do low-risk financial products lose money?

In this wave of redemption in the wealth management market, it can be seen that many netizens have questioned one question, why do you buy “R2-level bank wealth management and lose money?”

So, what does this R2 mean? From the perspective of risk, banks’ financial products can be roughly divided into five types: R1 cautious type, R2 stable type, R3 balanced type, R4 aggressive type and R5 aggressive type. Different risk types require different underlying products for investment to satisfy investors with different preferences for risk and return.

Therefore, from this classification point of view, if products with relatively high risks such as R3 to R5 lose money, everyone can generally understand it, but products such as R1 and R2 that guarantee the principal, or have a low risk of principal loss, There has been a large-scale retracement, which makes investors a little confused, and it will inevitably cause some panic in investors’ hearts.

We learned that the two types of investment, R1 and R2, are all monetary assets, such as cash, bank deposits, interbank certificates of deposit, bonds with lower risks, etc., are all such products. It stands to reason that the security of this type of wealth management products should be relatively high.

So, what is causing the current problems? A friend in the banking circle analyzed to me that the risk of this level of product is similar to that of interest rate bonds. It is not ruled out that fluctuations in interest rates have led to an increase in bond yields and transmission, which in turn has caused a retracement of investments in these wealth management products. The phenomenon.

Let’s take a look at the yield of government bonds. The yield of 10-year government bonds was around 2.70% on November 10, and continued to rise from the 11th. By November 15, it had exceeded the high point of 2.85%. , up nearly 15 basis points. Yields on one-year treasury bonds are also up about 45 basis points from a week ago.

We know that bond yields and bond prices are inversely related, that is, when yields rise, bond prices fall.

So what triggered the sudden rise in Treasury yields?

We have seen that the sudden rise in the yield of government bonds should be due to selling pressure in the bond market, which may be caused by market liquidity problems.

We have also seen that many analysts believe that China’s epidemic prevention and real estate policies have shown signs of loosening, which has driven market expectations and made investors actively adjust their positions, which has triggered a spiral decline in the bond market. The rate of return will naturally rise. In addition, the tightening of funds is also a big negative for the bond market.

In this round of bond market slump, public funds are one of the main participants in selling bonds. According to the statistical data of Guosheng Securities’ research report on November 15, judging from the scale of holdings reduction by various institutions on November 14, public funds are the main sellers, and this is true for both interest rate bonds and credit bonds. In the past week, public funds have reduced their net holdings of cash bonds by 55.2 billion yuan, and the week before that, monetary funds have significantly reduced their holdings of 79.8 billion yuan in certificates of deposit. What does this cash bond transaction mean? It is a transaction in which both parties to the transaction transfer the ownership of the bond at an agreed price, that is, a one-time buyout.

In addition to investing in wealth management products with low-risk assets, we just mentioned that some wealth management products have lost 20%, that is to say, some wealth management products should have invested in riskier assets, such as trust or equity products.

Then, will the underlying products of these wealth management products include real estate industry trusts, or stocks of real estate companies?

UBS Securities China Chief Economist Wang Tao also mentioned in a report released on November 9 that so far, the impact of China’s real estate downturn on the banking industry is still small, but the banking industry’s credit exposure to the real estate industry is relatively small. Big, Wang Tao estimates that by the end of 2021, the overall credit exposure of the banking industry to the real estate industry will be about 100 trillion yuan, which is equivalent to 30% of the total bank assets or 50% of the total bank loans.

Because the bank’s wealth management product manual does not specify which stocks, bonds, and trusts have been invested in, we can still guess from these analyzes and data that the problem of wealth management products is not unrelated to the real estate explosion in mainland China.

The CCP changed the rules and the wealth management market reappeared the “raise and kill” routine

Although the Central Bank of China rescued the market and stabilized the turmoil, as an investor, I think, we still need to learn some lessons from this loss and be vigilant.

Continental Bank began selling wealth management products in 2004. During this period, the bond market interest rate fluctuated more than once, and this time the volatility was not the largest. Moreover, in March this year, wealth management products also fell below their net assets on a large scale. Analysts at the time The reason given is the loss caused by stock assets. So why is there such a large-scale retracement this time?

Let’s take a look at an interview with the mainland media first. In the interview, Ms. Li mentioned that she has been buying wealth management products from Tianjin Binhai Rural Commercial Bank in the past few years. The low-risk wealth management products she bought in the past have almost never suffered losses. Moreover, the income of the financial products purchased in the past will be higher than the marked ratio when it expires.

At the beginning of November this year, Ms. Li invested another 1 million yuan to buy a wealth management product of this bank. The investment manager at the time said that the historical volatility of the product’s past performance and net value was relatively low, and it was a low-risk product with a relatively low starting point for investment.

However, what happened next is that in the past week, this product not only lost all the profits, but also lost the principal.

So, why is there such a big contrast before and after investors invest?

We know that China Everbright Bank was approved by the China Banking Regulatory Commission in 2004, and it was the first bank in mainland China to launch RMB wealth management products for individuals.

Since then, wealth management products in the banking industry have been labeled as rigid payment, capital preservation, and low risk. The impression of capital preservation and prudence makes wealth management products very popular among mainlanders.

According to the “Semi-annual Report on China’s Banking Wealth Management Market (2022)”, as of the end of June this year, the scale of wealth management in mainland China has reached 29.15 trillion yuan. Moreover, the investors in this market are basically retail investors, with more than 91.45 million investors, most of whom are individual investors, with about 90.62 million people.

With such a large capital pool, investors seem to have been enjoying the return of capital preservation and certain income. However, after a certain period of time, such a stable life will not remain unchanged.

We have seen that in April 2018, the Chinese Communist Party issued a “Guiding Opinions on Regulating the Asset Management Business of Financial Institutions”, which is called “New Asset Management Regulations” for short. This “new asset management regulation” has been formally implemented from January 1, 2022 after the end of the three-year transition period at the end of 2021.

So, what does this “new asset management regulation” say? From our point of view, the most important point is that financial institutions are not allowed to guarantee the principal and income of wealth management products, that is, they will no longer guarantee “rigid payment”, and customers who purchase them need to bear their own risks. In other words, the CCP is now starting to educate the common people about investments that can have high returns without risk. Those are all “myths.”

In fact, to put it another way, this is really similar to the CCP’s tried-and-tested “raise and kill” routine that we discussed on the show. We all know that the CCP is now cash-strapped, and it can be successfully harvested again by changing a rule. “Chives” too.

We have seen that when the wealth management products were first launched, the bank first showed the public a good impression of capital preservation and rigid payment, and continued to attract “leek” investment. After 15 years of penetration, in this stable, capital-guaranteed, rigid payment When the impression has been deeply rooted in the hearts of the people, the rules of the game are suddenly changed, and the labels of rigid payment and capital preservation are removed. But at this time, investors have already formed a habit of thinking, so they will be firmly attached to financial products.

Not only that, after the Central Bank of China injected hundreds of billions of funds into the market during the outbreak of redemption, on November 18, the State Administration of Foreign Exchange of the Communist Party of China issued a “Regulations on the Management of Funds for Foreign Institutional Investors Investing in China’s Bond Market”.

Ming Ming, chief economist of CITIC Securities, believes that this regulation can provide more convenience for foreign institutional investors to invest in Chinese bonds.

What does that mean? We have seen that, according to statistics from the Institute of International Finance (IIF), China’s bond portfolio has seen capital outflows every month, with a total outflow of US$105.1 billion in nine months.

So, with so much money on the run, the CCP must find some funds to rescue the bond market, so it opened a so-called convenience door for foreign investors. , The CCP’s sickle began to sharpen again, aiming at the “foreign leeks”.

As a matter of fact, the CCP’s routine of “raising and killing” has been going on in many fields. Now, even the original low-risk financial products are full of traps. Therefore, it is a compulsory course to be cautious when investing in the mainland.

Institute of Finance, Commerce and Economics
Planning: Yu Wenming
Written by: Li Yanxin
Editors: Yu Wenming, Wei Ran
Edit: Quge
Producer: Li Songyun
Follow “Financial Business World“: https://bit.ly/GJEconUND

Editor in charge: Lian Shuhua