Bank Wealth Management's "Allocation Confusion" in Highly Volatile Markets

Source: Huaxia Times

Text / Ran Xuedong

When market interest rates are high and the bond market continues a bull run, bank wealth management companies can steadily earn profits from fixed income. However, once the bond market bull run ends and equities and other markets fluctuate significantly, wealth management companies face difficulties. This is called the “allocation confusion” of bank wealth management companies.

Recently, many bank wealth management subsidiaries have been unable to sell many low- to medium-risk products, frequently failing. Since the beginning of the year, about 40 wealth management products have failed to be issued, including products from Huaxia, China Merchants Bank, and Guangfa Bank. In fact, product issuance failures are common, but this year they are more frequent and more obvious in their characteristics.

All these failed products are low- to medium-risk, mostly rated R2 (medium-low risk) or even R1 (low risk), and the vast majority are fixed income products. Clearly, these low- and medium-risk products have yields that are too low.

As the economy enters a downward cycle, monetary policy remains accommodative, with reserve requirement ratio cuts and interest rate reductions happening one after another. The yields on government bonds continue to decline, leading bank wealth management products that mainly invest in fixed income assets to face the problem of low returns that cannot attract customers. If the yields of bank wealth management products cannot be distinguished from deposit interest rates, then these products will have little appeal to customers.

The “Annual Report on China’s Banking Wealth Management Market (2025)” shows that in 2025, the average yield of wealth management products will be 1.98%, down 0.67 percentage points from 2.65% in 2024. Data from PuYi Standard indicates that by the end of February 2026, the one-month annualized yields of cash management, fixed income, hybrid, and equity products all slightly declined compared to the previous month.

This naturally raises another issue: serious product homogenization. Since they are all low- to medium-yield products and all invest in the bond market, they are inherently similar. However, product homogenization among wealth management companies is quite common. Previously, higher yields masked this issue; now, with yields so low, the problem is more prominent.

As asset management firms, providing higher returns for clients is their core responsibility. But as interest rates continue to decline, wealth management companies also face asset shortages. Unlike other asset management institutions, they have a broader range of asset allocation options, primarily investing almost entirely in fixed income.

Of course, since last year, many wealth management companies have tried this approach, such as increasing investments in equity markets. Amid a sustained bull market in gold, some wealth management firms issued more products investing in gold, with yields soaring at times. However, with recent Middle East geopolitical conflicts, the Strait of Hormuz being closed, rising oil prices, and heightened global inflation expectations, market interest rates have increased, causing large fluctuations in gold and equity markets, with many products experiencing significant yield volatility.

For example, one product has a bond asset holding ratio of 29.83%, an equity asset holding ratio of 12.00%, and among the top ten holdings, gold ETFs account for 2.48%. Last year, driven by sharp rises in stocks and gold, this product achieved a comprehensive annualized return of 22.23% in 2025, making it highly competitive in the wealth management market.

However, since March, the prices of assets like A-shares and gold have continued to decline. The Shanghai Composite Index fell to a low of 3,800 points on March 23, and international gold prices dropped 20% from their high, heading toward $4,100 per ounce. As of March 24, the product’s one-month return had fallen back to -20.46%, and its three-month annualized return had dropped to 2.54%. This reflects the common dilemma faced by bank wealth management products.

The source and nature of funds for bank wealth management products are to provide a deposit alternative for ordinary people, offering higher returns than deposits under the background of interest rate marketization. However, their risk appetite is generally low. Such highly volatile markets have deviated from their original purpose.

Currently, wealth management companies are still exploring, such as increasing the proportion of equity assets in low- to medium-risk products. Last year, many R2 (medium-low risk) products had equity assets among their top ten holdings, including some ETFs and stocks.

Some R2 products hold six stocks heavily, with direct equity investments accounting for 27.34% of total assets. Besides direct stock investments, ETFs have also become common in the underlying holdings of wealth management products. For example, one low-volatility R2 product at the end of 2025 held three equity assets among its top ten holdings after deep analysis, including Huatai-PineBridge CSI 300 ETF, Invesco Great Wall ChiNext ETF, and E Fund CSI 300 ETF.

Nevertheless, wealth management companies cannot simply abandon equity asset allocation. This is determined by their investment DNA; their research and investment capabilities in equities cannot be significantly improved in the short term. Therefore, shifting large amounts of bank deposits into equity markets remains difficult. This is also why, despite deposit shifts and a significant increase in non-bank deposits over recent months, the scale of bank wealth management has remained relatively stable: in January, it fell by over one trillion yuan, but in February, it increased by 700 billion yuan.

Thus, the transformation of bank wealth management involves not only the companies themselves but also investors and regulatory policies that need to adapt accordingly.