Concerns over lower liquidity worldwide main reason behind recent price swings

Market experts said price fluctuations are normal after investors were surprised over declines in the price of wealth management products, which were especially noticeable over the past few weeks, and advised that a more prudential investment attitude should be taken during times of uncertainty.

According to Shanghai-based market tracker Wind Info, nearly 8 percent of the 28,624 WMPs sold by banks by proxy have seen their market prices sink below their net asset value as of March 22, an indication they are encountering losses for the time being. Another 2,143 WMPs, or 7 percent of the total, are on the verge of falling below their NAV.

During the 2021 earnings call held on Monday, Wang Liang, executive vice-president and secretary of the board of China Merchants Bank, explained that the recent fluctuations in the NAV of WMPs are mainly because of the significant loss in capital markets this year.

The benchmark Shanghai Composite Index has shed nearly 10 percent so far this year. While expressing their apologies for the recent losses in the WMPs with a public letter on March 15, fund managers from SPDB Wealth Management explained there are three major reasons for the contraction in the value of WMPs.

Soaring inflation in developed economies combined with expectations of rising interest rates in the United States have resulted in market concerns over lower liquidity worldwide.

Heightened geopolitical tensions between Russia and Ukraine have sparked worries of global economic deflation along with the disrupted global commodities supply chain in oil and natural gas among others.

Market concerns have also mounted given the resurgence of COVID-19 in some parts of the country, which had an impact on market demand, supply and expectations.

Fund managers noted that the drastic market retreat will not last long. China's economic stabilizing policies are the decisive factor for bond and equity markets, they said.

Cheng Jiajun, president of the banking industry wealth management registration and custody center, which is under China Central Depository& Clearing Co Ltd, said on March 15 that yields in products will naturally go up and down according to overall market performance as rigid payment of WMPs is no longer valid.

The new asset management regulations released in April 2018 said WMPs contracts should not state any promise on capital preservation or guaranteed gains, removing the possibility of rigid payments. The transition period was completed by year-end.

Zhou Maohua, an analyst with China Everbright Bank, said individual investors should be aware of the transition of WMPs breaking rigid payments. The NAV of products will fluctuate significantly under such circumstances while the odds of receiving abnormal gains are the same. They should understand the underlying assets of the WMPs and choose products in line with risk tolerance.

The China Banking Association also suggested on March 15 that investors should be guided and grasp some basic investment knowledge. They should be able to understand market fluctuations more rationally and stick to the rules of long-term and value investment. Banks should also introduce high-quality WMPs which can cater to investment demand.