China has intensified its scrutiny over wealth management products (WMPs) following a significant outflow of funds, reports Bloomberg, citing sources.
Financial institutions have been directed to enhance monitoring of WMPs after approximately 1.05trn yuan ($149bn) was withdrawn by investors, who were enticed by a stock market rally, the sources said.
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The regulatory bodies have mandated daily tracking of WMP scales by banks, fund houses, and distributors.
This action comes as a response to substantial investor withdrawals from fixed-income products due to a swift recovery in the stock market.
Banks are also required to report their capacity to manage short-term redemptions.
These instructions echo similar directives issued in late 2022 after bond sell-offs led to investor redemptions.
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By GlobalDataThe measures are precautionary, aiming to safeguard the bond market from potential disruptions.
Some banks have communicated to regulators their plans to purchase bonds through proprietary trading to counteract redemption risks.
The National Financial Regulatory Administration and the People’s Bank of China have not provided comments on the matter.
The regulatory guidance highlights concerns that a cycle of WMP redemptions and dropping bond prices could incite financial instability.
The surge in the Chinese stock market, fuelled by Beijing’s economic stimulus, has seen retail investors withdraw from WMPs and bond-focused mutual funds, causing corporate bond prices to fall and hastening redemptions.
According to Bloomberg’s analysis of Puyi Standard data, China’s WMP balance decreased by 1.05trn yuan between 22 September and 6 October 2024.
The corporate bond market, which comprises about 41% of the total WMP balance as of June, felt the initial impact.
In contrast, sovereign or quasi-sovereign bonds accounted for less than 3%.
The average yield on three-year AA-rated company notes has seen a significant rise, marking the largest weekly increase in nearly two years, as per a Chinabond index.
Furthermore, the spread on three-year junk corporate bonds over sovereign notes has reached a one-year high.
In a separate news, recently, DBS and the China Council for the Promotion of International Trade signed a memorandum of understanding to boost foreign investment and trade between China, Singapore, and the ASEAN region.
