(Yicai) May 26 — Chinese savers are increasingly shifting their money into bank stocks, gold, bond funds, and money market funds after major banks cut their one-year deposit rates to below 1 percent — an unprecedented low.
Last week, state-owned lenders including Industrial and Commercial Bank of China and Agricultural Bank of China slashed their deposit rates below the psychologically significant 1 percent level, prompting a wave of portfolio rebalancing among retail investors.
The long-term trend shift is reflected in recent data from the People’s Bank of China: household deposits dropped by CNY1.39 trillion (USD193 billion) in April, while deposits held by non-bank and other financial institutions surged by CNY1.57 trillion.
Previously favored “high-yield” products such as large-denomination certificates of deposit and call deposits are rapidly losing their appeal. The average one-year CD rate issued by banks in March was just 1.719 percent, while even the highest-yielding five-year CDs averaged only 2.038 percent, according to figures from the Rong360 Digital Technology Institute.
Bank stocks have become a preferred choice for investors with a higher risk appetite. A retail investor told Yicai that depositing CNY1 million (USD138,806) in a bank now yields less than CNY10,000 (USD1,388) a year after tax, while investing in a diversified portfolio of bank stocks paying an average dividend of 5.8 percent could generate CNY58,000 of tax-free income.
“If you consider cumulative capital gains — such as Bank of Qingdao’s year-to-date increase of nearly 30.4 percent — the return gap between bank stocks and time deposits becomes even more pronounced,” the investor added.
As of May 23, 31 of China’s 42 listed banks had dividend yields above 4 percent over the past 12 months, according to Wind Information. Notably, joint-stock banks such as Ping An Bank and China Minsheng Bank offered over 8 percent, far surpassing returns on time deposits or government bonds.
Despite recent pullbacks in bank stocks, their dividend yields remain significantly higher than 10-year government bond yields and the returns on wealth management products. This positions bank stocks to attract long-term capital from institutional players such as insurers and social security funds amid falling deposit rates, said Guo Yiping, a banking analyst at Xiangcai Securities.
For risk-averse investors, bond and money market funds have emerged as attractive alternatives. One retail investor told Yicai that he now allocates 60 percent of his income to bond funds, which returned 5 percent last year — well above fixed deposit rates. With rates continuing to fall, he plans to invest the remaining 40 percent into bond funds as well.
Another investor in Shenzhen said he began investing in gold exchange-traded funds in 2022, alongside his allocations to bond and money market funds. Gold now represents 30 percent of his portfolio, and he plans to increase his holdings as interest rates decline.
“Despite recent price fluctuations, I remain optimistic about gold’s long-term prospects” he noted. “I take profits during peaks and buy on the dip.”
Young Chinese adults are showing interest in diversification. As of April, 9.4 million Alipay account holders born after 1990 simultaneously held money market funds, bond funds, and gold ETFs, according to Ant Fortune, an online wealth management platform under Ant Group.
Editors: Tang Shihua, Emmi Laine