As 2024 unfolds, the financial landscape in China is witnessing a significant transformation, particularly in the wealth management sectorThere has been a notable increase in the market share of various types of wealth management firmsDominating the scene are the wealth management subsidiaries of joint-stock banks, which have firmly secured their leading position in the marketNotably, the market share of state-owned banks’ wealth management subsidiaries has seen considerable growthThis rise is largely attributed to the fierce competition in the wealth management arena, which is expected to intensify as smaller banks gradually shift to a model focused solely on agency salesThis transition will allow them to capitalize on their regional market advantages, creating a complementary relationship with larger state-owned banks and joint-stock banks.

In 2024, several catalysts are driving growth in wealth management, but the predicted decline in high-interest deposit policies is expected to reduce these catalysts by 2025. The projected impact of lowering deposit rates, combined with the maturation of fixed-term deposits, is likely to contribute to a significant portion of future growthUnder a conservative assumption, it is estimated that the scale of wealth management could reach a peak of 31.5 trillion yuan by 2025.

Wealth management, having returned to a high point of 30 trillion yuan, is capitalizing on various investment strategiesHowever, the regulatory changes introduced in February 2024 regarding agreement deposits have limited the incremental growth via insurance investment agreements, resulting in a continuous decrease in their proportional contributionInvestments in “cash and bank deposits” have also diminished over consecutive reporting periodsIn contrast, the proportion of repurchase agreements and interbank certificates of deposit has continued to increase, demonstrating a shift in asset allocation strategies among wealth management products.

Although the proportion of bonds in wealth management portfolios has not significantly increased, the absolute scale of bond investments has clearly risen

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This is attributed to tighter regulations on high-interest deposits, which have forced managers to pivot from low-volatility assets to bondsMoreover, public fund positions have exhibited considerable volatility, with a noticeable dip in their market share by the end of 2024 as compared to mid-year, likely linked to market corrections encountered in the bond sector during the third quarter.

The average annualized yield for wealth management products has experienced a decline, reaching 2.65% in 2024, which reflects a decrease of 29 basis points year-on-yearDespite this decrease, wealth management offerings still present considerable appeal in terms of returns and liquidity when compared to traditional deposit ratesIn 2024, newly issued closed-end products maintained a similar duration (averaging 338 days), with an emphasis on mid-term bonds due to the high-interest rate regulations imposed.

Moreover, the absence of new wealth management licenses in 2024 emphasizes the accelerated exit of small banks from the wealth management marketThe market share of joint-stock banks has reached 42.74%, while state-owned banks have seen marked growth, nearing 33.22%. The Agricultural Bank of China’s wealth management subsidiary has surpassed others to become the third largest in the market.

Expanding distribution channels has significantly contributed to revenue growth for certain banksWealth management sales directly reached 5.1 trillion yuan, a sharp increase compared to 2.6 trillion yuan in 2023. Meanwhile, the number of cooperative distribution institutions for wealth management products also saw a substantial riseWith the transformation toward agency sales, some banks have reported impressive revenue growth, as evidenced by a nearly 60% increase in wealth management sales revenue for China Merchants Bank during the third quarter of 2024.

The landscape of wealth management in 2024 has portrayed a scenario rich with opportunities and challenges

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The overall scale of wealth management products reached approximately 29.95 trillion yuan, marking an annual growth rate of 11.75%. This was significantly propelled by various high-interest factors that influenced the competitiveness of wealth management products, leading to a sharper transition of funds from traditional deposits into wealth instruments.

In light of stringent regulations on high-interest deposits, products featuring cash management components are experiencing more considerable yield reductions, dropping from about 2.3% at the beginning of 2024 to nearly 1.6% by year-end—a decline of 1.24 trillion yuan for the yearConversely, non-cash management fixed-income products continue to attract investors, with certain periods reflecting returns above 3%, even amidst fluctuations in the bond market in October.

Looking ahead to 2025, the anticipated catalysts for wealth management growth appear notably diminishedAs the policy on high-interest deposits becomes stricter, the gradual influx of capital into wealth management solutions will be crucialThe reduction in deposit rates initiated by major financial institutions, particularly starting from October 2024, indicates a potentially slow transition whereby capital may not significantly flow into wealth management until fixed-term deposits mature.

The expected growth of wealth management assets in 2025 largely hinges on the scale of deposit repricingThe influence of the "manual interest supplementation" ban is plateauing, meaning that the available "loopholes" in high-interest deposits are becoming increasingly restrictedTherefore, the anticipated catalyst for growth will predominantly derive from the revaluation of deposits throughout 2025, where approximately 18% of deposits are scheduled for repricing, up 2 percentage points year-on-year.

Applying conservative, neutral, and aggressive models for wealth management increment calculations suggests potential increases ranging from roughly 31.54 trillion to a possible high of 32.12 trillion

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This indicates a broad spectrum of growth potential even under varying conditions of market risk appetite and investor inclination.

As we move into 2024, it’s clear that significant changes in investment strategy are shaping the future of wealth managementThe stringent regulations on banking deposits, including agreement deposits and various forms of traditional bank savings, have begun to substantially influence wealth product yields, particularly for cash management products.

In light of these high-interest regulations, wealth managers are increasingly shifting their focus towards more stable investments, such as bonds, thereby reflecting the ongoing effect of market conditionsConsequently, the ongoing decline in the proportion of cash and bank deposits underscores an essential transition towards products more in line with regulated asset classes, such as repurchase agreements and certificates of depositThe influence of the 2024 regulatory changes governing agreement deposits is notable, with the sector experiencing decreased growth in bank deposits vis-à-vis typical savings accounts.

The increases in overall participation in wealth management strategies, alongside various asset allocations, signal the need for heightened awareness surrounding the nuances of market performance and investor behaviorFor instance, the shifts in the percentage of bonds, despite nominally remaining stable, indicate that the absolute value of bond participation has surged.

Current observations detail an increase in the allocation to interbank certificates of deposit and repurchase agreements, whereas the bond market itself reflects a similar uptick amidst ongoing adjustments from institutional investorsWith larger joint-stock banks leading the way in the wealth management sector, additional attention to investment return optimization remains paramount in 2024 and beyond.

The surge in financial institutions opting for agency distribution models highlights the pivotal shift occurring within this sector

It is evident that by enriching their platforms and product offerings, the banking sector is enhancing its competitive edge, fostering stronger client retention, and ultimately driving overall growth in wealth management revenues.

Ultimately, as smaller banks continue navigating the increasingly competitive landscape, the transition towards pure distribution will shift the focus from traditional wealth management roles to becoming facilitators of investment solutionsThis strategic pivot will not only bolster the revenue channels of these banks but also refine their customer engagement practices, allowing a fresh perspective on how financial institutions interact with client needs.